Greece, Argentina, and the World

There are two countries that are dear to me, but that also break my heart. I love Argentina because in it I learned to live. I love Greece because in it I earned to sail (like Christopher Columbus, in the isle of Chios). It hurts me to see Argentina limp along below its potential. It pains me to see Greece full of people who, as in Argentina, practice “native cunning.” Both countries have become underdeveloped through their own efforts. That must change. Besides, the current Greek economic crisis threatens the union of all Europeans. That would be fatal for Western civilization. It would be ironic if the cradle of that civilization became also its gravesite.A teacher of mine, professor at Harvard, used to say that Greece was “an overrated little Balkan state.” He had a classical education from the College of William and Mary and then Yale, and criticized the English romantics –especially Lord Byron—for having sung the praises disproportionally of ancient Greece. His sarcastic stance pointed to a curious paradox. My teacher said that Greece produced a brilliant civilization, but always failed to become Greece, that is to produce a whole livable and loveable that is larger than the sum of its parts. Perhaps that was a reason why they succumbed to the Romans. The Greeks were brilliant individualists but also very quarrelsome. The Romans were dense but well organized. The observation was similar to one made to me by a taxi driver in Buenos Aires the other day. The cabby told me that his father used to say that if you observe an American in isolation you won’t give much for him or her, but if there are two they quickly manage to get organized, and three will start an enterprise. Argentines, on the other hand, his father said, are brilliant in isolation, but joined together they become erratic and quarrelsome. He then followed the anecdote with the inevitable comment on the forthcoming world soccer championship. The Argentine national soccer team is composed of great players who each succeed in different foreign (European) teams. When they get together to form the Argentine team at the world championship however, they do not perform well. There are too many stars in poor coordination. To end the analogy with Greece, I would say that both Greeks and Argentineans are excellent performers in foreign lands but in their own they often play against themselves.

Present-day Greece bears another resemblance to the Argentina of not too long ago: it too teeters on the edge of sovereign default, for a total sum that nears 300 billion dollars. The deadline for interest and other payments is due very soon, and there are no funds available in sufficient quantity to defray the outstanding obligations. Greece will have to either re-negotiate the debt (default and restructuring) or borrow more money from Peter (EU plus the IMF) to pay Paul (French and German banks for the most part). Like Argentina eight years ago, in order to borrow more and pay old debts, Greece must convince its creditors that in the future it will spend less and earn more, so as to meet its obligations in the long run. It must show a credible austerity plan.

A liquidity crisis (being short of funds to pay what is owed on time) can be overcome with the help of others. But this is a crisis of solvency (the longer-term capacity of the economy to earn enough to pay off debt). Liquidity crises are sometimes resolved with stabilization plans –usually designed and enforced by multilateral agencies like the IMF. They are in essence austerity plans. They rarely work because they have two serious flaws: they are pro-cyclical (they aggravate the economic downturn) and they are deeply unpopular, because for the general public “adjustment” means tightening one’s belt.

When such temporary, or dilatory, measures fail, the “organized adjustment” of a bailout is followed by a chaotic default, which happened in Argentina between 2001 and 2002. The entire country declares bankruptcy; transactions come to a halt; there is mass impoverishment, and the country turns into an international pariah –unable to gain access to capital markets and isolated from the dynamic flows of the global system. The liquidity crisis becomes a solvency one: default means that creditors lose faith in the country, shun it and leave it to the good will of God. There is worse: in the months and weeks leading to default international speculators place bets on the impending disaster, effectively turning their bets into a self-fulfilling prophecy. In the lingo of the racetrack, it means betting against a horse (it is called “shorting” and it means making money on someone else’s mishap). The press calls such actions an “attack by the markets.” With a different analogy, it is the financial equivalent of a shark attack on a wounded prey. One of the salient characteristics of a complex and interrelated world economy is this capacity of the markets to bring down an entire nation state. I remember that in 2001 Argentina, the then super-minister of the economy Domingo Cavallo, caught in the straightjacket of a currency board of his own making (like Greece today being trapped in a single European currency), referred to “the markets” as “four damned yuppies with cell phones” -a curiously dismissive remark by someone who had been close to Wall Street.

It may well be that Greece follows the rocky road transited by Argentina. But I must point to two important differences with Argentina. First, in 2001-2 Argentina was utterly alone, without any possible assistance from its neighbors and facing the indifference or even hostility of the central countries. By contrast today’s Greece is a member of the European Union. Its plight threatens to drag the entire Union down, which will provoke a crisis of the euro currency and might even cause a relapse of the world economy into a double-dip recession. The difference then is one between a crisis at the margins of the world system and a crisis at the very center of it. Second, after its default, Argentina was impoverished and isolated, and yet it recovered with astonishing speed in the following years thanks to the thriving export market for its agricultural produce, notably in China. The agricultural bonanzas led to a new type of dependency and to a distribution jostle inside Argentina, but all told it allowed the country to crawl back from the financial hole where it had fallen. It is difficult to foresee an equivalent recovery for Greece. Years will pass before we see a Hellenic “renaissance.” Neither its high-seas fleet nor tourism is capable of generating enough growth to overcome the financial negatives. Greece will be at the mercy of European and international supervisors. What will increase is the out-migration of thousands from the Greek archipelago. The established destinations will be Australia and North America. Diaspora after all is not new to the Greeks.

If Europe is incapable of managing and containing the Greek crisis, the disease will spread to the rest of the Continent, weaken the euro, and even threaten a EU breakup. This prospect is grave, because only a solid and united Europe can compete with the great continental powers –the US and the BRICs. The most somber scenario is not the exit of Greece from the European Union, but a chain reaction –first with the PIIGS (Portugal, Ireland, Italy and Spain), then with the rest– leading to the secession of Germany, always nostalgic for an illusorily safe Deutsche Mark. Germans do not seem to understand that such “go it alone” solution will endanger not only Europe but Germany too. The narrow pursuit of national interest would be counterproductive and nefarious for the fatherland as well. It’s high-stakes poker in Europe this time.

Meanwhile Argentina has left the drama of 2001-2 behind. But neither in Greece nor in Argentina, neither in soccer nor in life, one can recover on the sole basis of luck and improvisation, which seem what world leaders –especially in Europe—are counting on.

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