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On 5/21/15 5:51 PM, Louis Proyect via Marxism wrote:
<http://roarmag.org/2015/05/why-does-greece-not-simply-default>
Aided by good external conditions, Argentina’s recovery began after 6
months.
http://www.realclearworld.com/articles/2015/02/11/greece_cannot_do_what_argentina_did_110966.html
February 11, 2015
Greece Cannot Do What Argentina Did
By Nicolas Creus & Esteban Actis
The triumph of the left-wing Syriza party in Greece has sent shockwaves
through international politics and the global economy. The coalition
government led by Alexis Tsipras announced that its main economic goal
is to restructure Greece's considerable external debt, which stands at
175 percent of gross domestic product, as a necessary condition to
return to economic growth.
Tsipras and other Syriza members have highlighted Argentina as a viable
model for undertaking the difficult task of negotiating with creditors.
Argentina at the end of the 20th Century experienced an economic crisis
of similar magnitude. Gross Domestic Product fell sharply for four
consecutive years; the country was mired in high debt; unemployment
stood at 25 percent, while 40 percent of Argentinians fell below the
poverty line. This culminated in December 2001 with the largest default
ever recorded.
After tough negotiations, Buenos Aires was able to ease the burden of
Argentina's external commitments - the country emerged from years of
economic recession. Argentina's debt restructuring was an exceptional
case. Not only was Buenos Aires able to avoid the involvement of the
International Monetary Fund, but creditors agreed to include a strong
haircut in nominal terms (about 75 percent), a reduction in the rate of
recognized interest, and a considerable extension in the maturities of
new bonds. The exchange was completed in June 2005 and was considered a
success, with 76 percent of creditors who held defaulted bonds accepting
a nominal haircut.
How did a peripheral, developing state such as Argentina lock in this
kind of debt relief while negotiating from a position of weakness? The
role of the United States - not only a global power, but also a
guarantor of regional stability - was a crucial factor. Washington's
support favored Argentine interests and helped shore up Buenos Aires'
bargaining stance.
Evolutions in Washington's international financial policy helped
determine the United States' functional and at times openly favorable
attitude toward Argentina. Washington at the time was implementing a new
approach for resolving sovereign debt crises. Further, the United States
wanted to head off any contagion to the global economy.
The U.S. government sought to end the costly bailout policies that had
characterized the resolution of debt crises during the nineties. The
debacle in Argentina provided a test case for a new approach, especially
since U.S. nationals were not too highly exposed. In this regard,
Washington's interest was for a resolution of the Argentine default that
would avoid the extension of any financial assistance.
In tune with Washington's new approach, a sheltered and recovering
Argentina held back from the search for new money. Thus Buenos Aires
broke the unity of the main stakeholders in the financial system while
strengthening its demands for a strong haircut on private creditors,
understanding that with no rescue or financial assistance forthcoming,
the latter would have to share in the costs of restructuring.
This was reinforced by the imminent danger of a contagion that would
threaten regional stability. The main fear was that Brazil's vulnerable
economy would suffer, thus jeopardizing the success of the new approach
for solving sovereign debt crises. Accordingly, the United States,
pursuing its own strategic interests, endorsed and supported the
Argentine government's bold restructuring proposal, haircut and all.
The Greek case is very different. There is no overlapping interest
between the debtor country - Greece - and Germany, the main power
responsible for ensuring order and financial stability in the European
system. Athens initially proposed a haircut as an important condition.
Berlin flatly rejected this possibility.
The German reluctance to support Greece's proposals responds to a number
of factors that create a clear contrast with Argentina's experience.
First, European banking sectors in general, and German banking in
particular, have high credit exposure to Greece. Second, evidence shows
a low risk of contagion to the European periphery, which removes the
incentive to accept debtor conditions. Finally, Germany fears that
countries such as Spain, Italy, and Portugal could emulate Greece. These
are countries imposing considerable fiscal austerity measures to
counteract their high indebtedness, and this dynamic hampers the
possibility of a more flexible policy toward Greece. From the German
view, any replication of the Greek approach not only threatens the
financial stability of the European Union - it also legitimizes a new
political vision for Europe's future.
The Greek government has far less room to maneuver than did a
Washington-backed Argentina. Athens is unlikely to push an aggressive
haircut on its creditors, lessening the prospects of a debt
restructuring process with South American characteristics. The lack of
support from Germany, and that country's conflicting interests with
Greece, demonstrate the limitations imposed by context. There is a clear
gap between reality and Athens' desires.
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