The Dublin Economics Workshop will hold its annual economic policy conference at the Hodson Bay Hotel in Athlone October 16th and 17th next. Proposals in any area of economic policy are invited and should be forwarded, ideally before September 4th, to both of the following: charles.larkin@gmail.com and colm.mccarthy@ucd.ie.
Programme and booking details will be circulated in due course. The Dublin Economics Workshop is kindly sponsored by Dublin Chamber of Commerce.
If an extend-and-pretend deal is done it will be the third Greek ‘rescue’. Without debt relief it will also be the third to break the IMF rule, adopted after the Argentina failure in 2001, to avoid financing countries with unsustainable debts.
In early 2010 the debt/GDP ratio in Greece was predicted at 115% (it turned out to be 130%), the deficit in double digits and GDP sinking fast. The Fund rewrote its rule-book to get involved in the Troika despite the unwillingness of IMF staff to sign off on debt sustainability. See the account from the CIGI think-tank
https://www.cigionline.org/sites/default/files/cigi_paper_no.61web.pdf
The 2012 deal repeated the procedure, this time with haircuts of private creditors.
The Greek economy is again contracting, the budget headed back into serious deficit, the debt ratio headed for 180%. Even with low interest rates and long duration of official debts, no sustainability analysis is likely to look healthy. The bond market, to which Greece must return, agrees.
The IMF cannot credibly repeat the routine of 2010 and 2012 – it does have non-European members after all, and its exposure to Europe is already unacceptable to them. Lagarde, as French Finance minister, opposed Greek debt restructuring in 2010 but there is no guarantee that the IMF board will participate again without haircuts, this time for its European ex-partners. The week could see no deal with Grexit, or Trexit, the end of the Troika.
FIFA, the governing body of world football, has been a byword for corruption for decades, stretching back to the presidency of Sepp Blatter’s predecessor, the Brazilian Joao Havelange, when Blatter was number two in the organisation. Under the Havelange presidency millions of dollars went walkabout in murky transactions between FIFA and a company which marketed its TV rights. More recently the World Cup of 2022 was awarded to oil-rich Qatar, to be played in high Summer in temperatures of 40 degrees Centigrade. The Sunday Times has documented wholesale vote-buying on behalf of Qatar. US Attorney General Loretta Lynch has made it clear that the FBI investigations, which have yielded criminal indictments against FIFA officials, cover offences stretching back to 1991.
Sepp Blatter has been a senior FIFA official for forty years and president since 1998. How can his serial re-elections be explained, the most recent two weeks ago after the announcement of FBI action? FIFA is a most unusual organisation and its governance and economic structures make corruption almost inevitable.
Governance: Every national association, in even the tiniest country, has one vote in FIFA elections. Some tiny palm-fringed idyll in the South Pacific, where soccer was unheard of until recently, can form a football association and expect instant recognition from FIFA. It will then have one vote at FIFA congresses, same as Germany and Brazil, the regular world champions. FIFA has 209 members. There are not 209 countries in the world (the United Nations has just 193 members, for example). ‘Countries’ such as Andorra, San Marino, the Faroe Islands and numerous others are FIFA members. The smallest member in population terms is Montserrat, home to 5000 souls. These ‘countries’ are not regarded as eligible for membership in any serious international organisation, since they are not fully-fledged states but remnants of the Dutch, British and French empires. FIFA member Liechtenstein is a remnant of the Holy Roman Empire. It is not difficult, or costly in the overall scheme of things, to re-distribute rents to these minnows to ensure their loyalty. This is the first part of the explanation for Blatter’s repeated majorities.
Economics: The second part is the simple fact that FIFA has had, for the last four decades, quite a lot of rents to dish out. Without economic rent there is no pot of graft. The rent source is a monopoly, the World Cup: it has become, through TV rights and sponsorship, a huge money-spinner. The players, who tend to take the lion’s share of the earnings available in all other major sports, get paid very little for national team appearances. If they wish to play international football at all, they have little bargaining power. Once committed to a national team, usually the country of their birth, they cannot threaten to desert to someone who pays better. If they could, Saudi Arabia would win the World Cup. Most professional football clubs do not make profits: the players, and their industrious agents, make sure that most of the revenues flow through to the performers, which is what happens in every other branch of the entertainment business. In football the World Cup revenues flow to FIFA, an opaque and unaccountable organisation whose leadership is free to perpetuate itself through buying the small national associations around the world. These national bodies in turn have weak, or no, corporate governance. With one brave bound, the money is free.
It is the combination of equal votes for all with billions of unearned revenue dished out behind the curtain which has created the FIFA monster. This is corruption by design.
It is Dark Forces, after all.
Jean-Claude Juncker, the European Commission president, has finally terminated the endless speculation as to the source of the Eurozone’s travails. In a speech yesterday he has fingered the likely source of any threats to the survival of the common currency subsequent to a Greek exit.
Speaking to an audience at the Catholic University of Leuven in Belgium, Jean-Claude Juncker said a “Grexit” would leave the euro prey to forces who “would do everything to try to decompose” what remained of the monetary union.
“Grexit is not an option,” said Mr Juncker.
“If we were to accept, if Greece were to accept, if others were to accept that Greece could leave the area of solidarity and prosperity that is the Eurozone, we would put ourselves at risk because some, notably in the Anglo Saxon world, would try everything to deconstruct the euro area piece by piece, little by little.”
His spokeswoman clarified that the reference to the Anglo Saxon world was not aimed at Britain but was to be construed as a reference to ‘markets and speculators’.
It should be a great relief to all, especially Greeks, to learn that the Eurozone is an ‘area of solidarity and prosperity’. The news that the dystopia of ‘markets and speculators’ is confined to the Anglo Saxon world is a further comfort.
Most importantly if the Great Experiment ends in tears there will be no need for an inquest. It was the Anglo Saxons!
Anyone remember Harold Wilson and the Gnomes of Zurich?
I am surprised this has not received more attention.
http://www.bloombergview.com/articles/2015-04-21/imf-needs-to-correct-its-big-greek-bailout-mistake
The original sin of Eurozone crisis mismanagement was the May 2010 ‘bail-out’ of Greece. As Karl Otto Pohl noted at the time, the beneficiaries were German banks, even more so French banks (as always, you gotta hand it to the French!), and rich Greeks. Yanis Varoufakis agreed at the time with Pohl, for which he will not be forgiven.
If you subscribe to the view that careless lenders should face haircuts, the official lenders to Greece should take a belated bath.
All of them, including the IMF, which means its shareholders, including us.
The alternative is an international financial order built on a doctrine of official creditor impunity.