Continuing the discussion we began on modern parallels to the Versailles Treaty (the Greek Bailout, as I claimed here, or Maastricht, as Klaus Kastner juxtaposed here – see also my rejoinder here), Klaus Kastner takes stock with this, latest, missive.
After reading the comments, I need to clarify (I was very glad to see that one commentator, Uwe Bott, understood where I was coming from!).
My issue was ‘perceptions’. I wasn’t saying that Le Figaro was right. I am not saying that the German perception is right. Neither am I saying that the Greek perception is right. All I have tried to point out is that there are two sides to everything; different perceptions of the same facts. If my business/management career has taught me anything, it has taught me that one must try to understand the perception of the other side if one wants to make constructive headway.
For example: if the Greek side describes itself as the victim of modern day Versailles, it is only natural for me to also present the view from the other side. If this had started with a German blog describing Germany as the victim of modern day Versailles, then I would have presented the Greek side. If the readers of this blog would know the articles I write and the comments I make about Greece in German/Austrian media, they might conclude that I have a twin brother (one of my first articles about Greece was titled “A Nueremberg Trial for EU Elites!”).
The only part where I came close to making a point was, ‘incidentally’, the primary surplus. As long as a government has a primary deficit, it needs to borrow for both: domestic expenditures and foreign debt service. Once it breaks even on the primary level, it needs to borrow only for debt service. Once it is in surplus on the primary level, it can decide – unilaterally, if it so desires – about the application of that surplus — for domestic expenditures or for foreign debt service. That’s why I was saying that Greece, until it registered a primary surplus, could not have been prioritizing foreign debt service over domestic expenditures because the money which Greece had to borrow to cover all of its expenditures had to be borrowed abroad and was not freely at Greece’s disposition. Almost 80% of that money was lent to Greece with the proviso that Greece would turn around and give it back to the lenders as debt service. Thus, there could not have been any prioritizing (or avoidance thereof).
On a more general level: no, I don’t believe in ‘crime & punishment’ when it comes to financial restructurings. For the simple reason that it doesn’t work. On several occasions, I have participated in ‘bankers’ meetings’ where we bankers faced a borrower who had literally taken us for a ride. Who had terribly cheated us. Where our gut told us to drive his company into bankruptcy and to send him to jail. And when reason returned, we had to recognize that we would only be shooting ourselves into the foot. When the borrower is a corporate, the ‘shooting in the foot’ is easier to recognize because the corporate can go bankrupt. When the borrower is a sovereign and since there are no bankruptcy laws for a sovereign, the ‘shooting in the foot’ is often not recognized at first. In the long run, the foot will be shot. Any financial restructuring has to be an unemotional give-and-take if it is to work well. And, yes, it does help if one understands the other side’s perceptions.