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It's speculators vs democracy |
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Saturday, 13 March 2010 |
 Greece may be doing all the right things to revive our economy, but not everyone may want us to succeed. To succeed, the international community needs to address the threat of speculation and ill-regulated markets — a threat that imperils not only Greece but the entire global economy. I see that threat every day as we manage this crisis, for the immediate problem we face is not dealing with the recession, but in servicing our debt.
Despite the deep reforms we are making, traders and speculators have
forced interest rates on Greek bonds to record highs.
Many believe
there have been malicious rumours, endlessly repeated and tactically
amplified, that have been used to manipulate normal market terms for our
bonds.
Partly as a result, Greece currently has to borrow at rates
almost twice as high as other EU countries. So when we borrow 5 billion
euros (Dh24.94 billion) for five years, we must pay about 725 million
euros more in interest than Germany does. We will have a very hard time
implementing our reform programme if the gains from our austerity
measures are swallowed up by prohibitive interest rates.
This whole
affair has a horrible sense of déjà vu. The same financial institutions
that were bailed out with taxpayers' money are now making a fortune from
Greece's misfortune while those same taxpayers are paying the price in
deep cuts to their salaries and social services. Unprincipled
speculators are making billions every day by betting on a Greek default.
All this may sound a bit familiar, especially to Americans who recently
bailed out their banks.
Yet unlike the bankers, Greece isn't asking
for a bailout let alone a bonus. Indeed, we have slashed the salaries of
every single government official. I myself have taken a significant pay
cut. And we have slashed bonuses in Greek banks by up to 90 per cent.
Interdependent
The
global economy is interdependent. We all suffer or advance depending on
how well we deal with these risks. There are both immediate and
long-term steps we can all take to counteract the forces that are
profiting off self-fulfilling bets.
In our modern global economy
expectations play a powerful role. Many real numbers are shaped by what
happens in people's minds or "animal spirits", as [economist John
Maynard] Keynes called it. This is why friends of Greece and friends of
democracy can and should help out.
An elected government, making huge
changes with the consent of its people, is being undermined by
concentrated powers in an unregulated market.
It is true that Greece
accounts for just 2 per cent of the European Union's GDP. But our
economic conditions can have a far larger impact than that figure
implies. An ongoing euro crisis could cause a domino effect, driving up
borrowing costs for other countries with large deficits and causing
volatility in bond and currency rates across the world. A small problem
could be the tipping point in an already volatile system.
We should
remember that the Great Depression in the US was followed by a second
recession in 1937-38 that derailed the world's recovery and prolonged
that crisis. If the European crisis metastasises, it could create a new
global financial crisis with implications as grave as the US-originated
crisis two years ago.
For America, a weak euro means a rising dollar.
That, in turn, means a rising US trade deficit which will not help
America's economy rebound. If the EU still America's biggest trading
partner should falter, the consequences in Europe would be palpable.
That
is why Europe and America must say "enough is enough" to those
speculators who only place value on immediate returns, with utter
disregard for the consequences on the larger economic system not to
mention the human consequences of lost jobs, foreclosed homes and
decimated pensions. These market manipulations which were at the heart
of the banking system's collapse are still legal practice. It is hard to
fathom that we have allowed this to happen.
It is common sense,
enforced by insurance regulators, that a person is not allowed to buy
fire insurance on his neighbour's house and then burn it down to collect
on that insurance. Yet that is exactly what is done in the market for
credit default swaps. It is the scourge that has led banks to foreclose
on the homes of millions of Americans. It is the scourge that haunts
Greece and all of us.
But if Europe and America jointly step in to
shore up global financial regulation and to finally ensure enforcement
of regulations we can curtail such activities.
It is an encouraging
sign that the American authorities have ordered some speculators not to
destroy records of their trading in euros. The US authorities should
continue to pursue these investigations.
Since the 1980s, we have
witnessed a succession of global financial crises the Third World debt
collapse, the US Savings and Loan debacle, the Asian financial crisis,
the high-tech and housing bubbles, and now the worst global recession
since the 1930s.
Globalisation which promised so much, and opened so
many doors to those of us with the good fortune of advanced educations
and careers has also brought new inequalities and risks.
This crisis,
therefore, is an opportunity to correct many of the excesses of
globalisation. It calls for deep structural changes to our global
institutions and our system of global governance.
We cannot afford to
squander another opportunity to make the critical changes that our
current reality demands. Decisive and collective action and regulation
is urgently required if global economic growth is to be sustainable.
Together
with my European partners, we have taken a common initiative to
strengthen financial regulation, particularly vis-a-vis speculation. We
need clear rules on so-called shorts, naked shorts and credit default
swaps. I hope that there will be a positive response from the American
side of the Atlantic to bring this initiative to the G20.
By George
Papandreou, Prime Minister of Greece, GulfNews, Global Viewpoint
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