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R ESTARTING G REECE A FRESH G REECE : DEALING WITH THE P AST, P RESENT, F UTURE Jacques DELPLA Milos, 13 July 2012 Conseil d’Analyse Economique, Paris.

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Presentation on theme: "R ESTARTING G REECE A FRESH G REECE : DEALING WITH THE P AST, P RESENT, F UTURE Jacques DELPLA Milos, 13 July 2012 Conseil d’Analyse Economique, Paris."— Presentation transcript:

1 R ESTARTING G REECE A FRESH G REECE : DEALING WITH THE P AST, P RESENT, F UTURE Jacques DELPLA Milos, 13 July 2012 Conseil d’Analyse Economique, Paris

2 T ROÏKA PROGRAMS HAVE FAILED (F LOWS ) It is impossible for Greece, without inflation and devaluation, to absorb 100% of the shock: In the US, in case of asymmetric shocks, Federal level absorbs 20% to 40% of the shock through automatic stabilizers. Troïka programs suppose that Greece would bear 100% of the shock  impossible  We must find Mundellian Transfers in the Eurozone 2 13 July 2012. Milos Jacques DELPLA

3 T ROÏKA PROGRAMS HAVE FAILED ( STOCKS ) Troïka programs have failed because they have not solved the massive private debt overhang and public debt overhang (despite PSI+)  Greece needs a generalized Chapter 11 3 13 July 2012. Milos Jacques DELPLA

4 D EALING WITH THE P AST : DEBT OVERHANG A GENERALIZED C HAPTER 11 IN G REECE 4 13 July 2012. Milos Jacques DELPLA

5 D EALING WITH EXPLICIT AND IMPLICIT DOMESTIC DEBTS Proposed reform : Restructuring ALL debts Cut-off date : DD/MM/2012 (or 2013) “ALL (economic and social) contracts signed AFTER cut-off date are SENIOR to contracts signed BEFORE the cut-off date” Would apply to ALL contracts under Greek law 5 13 July 2012. Milos Jacques DELPLA

6 W OULD END CREDIT CRUNCH AND RESTORE GROWTH Would end credit crunch by securing fresh money and start new fresh loans to finance growth  Would entail general debt equity swaps for Banks (like in EC Barnier’s latest proposals). Corporates As their legacy debt would be juniorised or swapped into equity Burden would fall on legacy debt & equity holders 6 13 July 2012. Milos Jacques DELPLA

7 W OULD JUNIORIZE ALL IMPLICIT DEBTS Past implicit liabilities Pensions Implicit claims “avantages acquis” Would be juniorized and restructured  cleaning and clearing past arrangements that have precipitated Greece into bankruptcy and economic chaos 7 13 July 2012. Milos Jacques DELPLA

8 W OULD ALLOW “ INTERNAL DEVALUATION ” As in ALL companies or public administration, New labor and wage contracts would be senior. Existing employees would be proposed to sign new labor contracts with, most likely, lower wages If they refuse, face the possibility of being paid only after all new contracts have been paid.  decentralized and voluntary internal devaluation 8 13 July 2012. Milos Jacques DELPLA

9 W HY WOULD G REEK G OVERNMENT AND G REEK PEOPLE ACCEPT THAT ? Would clean past internal imbalances Would start Greece afresh Avoid debt deflation Would allow growth to resume Make elderly pay; preserve the youth Would be conditional on investors agreeing to restructure Greek sovereign debt (which is now under UK law and with a very strong seniority) 9 13 July 2012. Milos Jacques DELPLA

10 D EALING WITH THE PRESENT : M UNDELLIAN T RANSFERS A N U NEMPLOYMENT I NSURANCE IN THE E UROZONE 10 13 July 2012. Milos Jacques DELPLA

11 N EED FOR M UNDELLIAN T RANSFERS We call for “Mundellian Transfers” to save the €, analogous to US automatic Stabilizers With strong & credible conditions: “no money without reforms, no adjustment without money” Mechanism design for a EZ Full of eco & pol incentives: ‘opt-ins’, ‘opt-outs’, finite duration. Inter-Governmental scheme. 11 13 July 2012. Milos Jacques DELPLA

12 A E URO - WIDE C ONDITIONAL U NEMPLOYMENT I NSURANCE The FUND 1. Creation of a € unemployment insurance fund 2. 1% of each country’s GDP 3. + maybe € job training funds (0.5% of GDP) 4. Managed by European Labor Agency (EC) 5. But an Inter-Governmental Scheme It is an opt-in program Each year, Each country can decide or not to participate 12 13 July 2012. Milos Jacques DELPLA

13 T HE E UROZONE L ABOR CONTRACT Definition of an EU wide Labor contract : Unique for the whole €-area Unique for all sectors Would be the (N+1) contract in each country W ith full Flexisecurity Designed by former PM Rasmussen & Persson, + Blanchard Tirole 2003: bonus / malus + increasing rights in case of dismissal + higher u/e contributions for employers 13 13 July 2012. Milos Jacques DELPLA

14 W ORKERS ’ OPTIONS When hired, each worker has the option Until last moment, to sign for : National contract + national insurance (status quo) OR, sign for : Eurozone labor contract + (national + EZ) unemploym. insurance + (national + EZ) job training In any case, access to national insurance. € insurance optional, in exchange of flexibility 14 13 July 2012. Milos Jacques DELPLA

15 P ROPERTIES decentralizes flexisecurity decision to the the individual. By-passes political difficulties of reforming national labor laws. Transfers money from booming countries to depressed areas, where it is most needed (u/e) 15 13 July 2012. Milos Jacques DELPLA

16 D EALING WITH THE F UTURE : M AKING G REECE THE FIRST C OUNTRY TRULY MEMBER OF THE EU FEDERATION 13 July 2012. Milos Jacques DELPLA 16

17 G REECE, THE FIRST COUNTRY TO JOIN THE EU F EDERATION, À LA J EAN MONNET Greece accepts full shared sovereignty with EU For important decisions: Two executives in Greece: Greek government EU Commission Two Parliaments: Greek Parliament EU Parliament Each decision needs double YES 17 13 July 2012. Milos Jacques DELPLA

18 I N EXCHANGE Greece would benefit from : Permanent transfers (like in the US) EU Help for institutions reforms and build up EU permanent Guarantees on Laws Property rights Civil rights (avoid Hungary now) and civil peace Defense and security … (see after) 18 13 July 2012. Milos Jacques DELPLA

19 E XIT O PTION We do not want anything like the US Civil War of 1860-65. To force a country to stay in the Federation Exit Option: Greece can withdraw from the EU Federation And become a normal EZ country Would lose all the special benefits, especially transfers 13 July 2012. Milos 19 Jacques DELPLA

20 T HE E UROPEAN A RMY Let us create a European Defense Community (like Jean MONNET’s idea in 1952) With the merger of all/ some parts of national armies (including the UK & Poland) Financed by 1% of GDP in each country Ex: France defense now (2% of GDP) One part of the Army (1% of GDP)  EU Army Another part (1% of GDP)  remains French (nukes) In the long run, all French Army would be European 20 13 July 2012. Milos Jacques DELPLA

21 G REECE IN THE E UROPEAN A RMY Greece would merge ALL its Defense in a new European Defense and Military Union No Greek Army as such anymore Because of its history and geopolitical situation, in Greece would be stationed important components of the EU army (troops, navy…), with both Greek and EU soldiers / officers Greece would specialize in Defense, like South Carolina in the US 13 July 2012. Milos 21 Jacques DELPLA

22 I MPACT FOR G REECE A complete Security guarantee, stronger than NATO: attacking Greece, is like Pearl Harbour in the EU Greece would spend less on its defense Would receive massive transfers from this EU Defense Community About 5% to 10% of Greek GDP each year (paid for mostly from Germany, Austria…) 22 13 July 2012. Milos Jacques DELPLA


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