Monday, January 23, 2012

The PSI Distraction in Greece

For the past several weeks, news reports have alternated between two stories: one is that Greece is about to reach an agreement with its private sector creditors, the other that discussions between Greece and its creditors have broken down. In some ways, this drama is reminiscent of 2011 when news reports kept alternating between “Greece is about to default” and “Greece will not default.”

But in a more basic way, this is the third time that Greece has been caught in such a distracting cycle. The first was the culmination of the “indignant movement” in mid 2011. After continuous protests, the prime minister offered to resign, then took it back and instead reshuffled the cabinet. The moment marked some kind of perceived triumph at least in the public eye. Except that the contentious bill – the Medium Term Fiscal Strategy – passed at it would have before the reshuffle. This build-up led to a climax - and then nothing happened.

The second time was the response to the proposed referendum on the haircut announced by PM George Papandreou in late October 2011. Then, as in the summer of 2011, the country entered another ridiculous period, which ultimately led to the resignation of the prime minister followed by a weeklong search for a replacement. Once again, the enormous tension was released by a change in government – and then nothing happened. The country went into a state of torpor akin to hibernation.

We are once again in this position. For weeks, the country is focused on the talks between the government and the private sector creditors. I have no inside knowledge of the talks but my suspicion is that some of compromise will be reached and all these efforts will conclude with a debt exchange. Then on the day after, we will realize that even though this interest rate break is nice, the country is still faced with all the myriad problems it faced the day before the haircut.

The penchant for drama makes for good television and it helps to sell papers. But at the end of the day, all this wasted energy is merely a distraction from the country's real agenda: the need to shrink the state and to revitalize private industry. Until that happens in a serious way, all news is noise.


  1. If the circus keeps the bondholders and the public confused and distracted then at least you are buying some time, and cheaply at that.

  2. To what end? The logic is inexorable - leave the Euro. Everything else is mental masturbation.


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