TripleCrisis

Solving the Greek Debt: An Attractive Compromise

There is an urgent need to reach a solution of the Greek debt problem that is effective and beneficial for Greece, its Eurozone creditors, as well as for the whole European and global economy.

Fortunately, such a solution exists and is gaining support. It is the proposal that suggests transforming the debt that Greece owes to Eurozone governments into GDP-linked bonds. Such bonds would link servicing of interest payments to the growth of the Greek economy.

They would not reduce the total value of the debt for the creditors and, thus, satisfy the creditors’ key demand: no debt reduction for Greece. But what GDP-indexed bonds would do is reduce debt servicing in the short term for Greece, whilst its economy is on a recovery path and not yet growing sufficiently. Granting Greece such a breathing space would be good for its economy and for its creditors. Giving growth a chance to pick up again would strengthen Greece’s capacity to meet its debt obligations in the future and lower, if not altogether remove the risk that taxpayers in the Eurozone countries may ultimately have to pay for Greece’s debt burden.

Read the rest of this entry »

Another Game-Changing Election in India

Jayati Ghosh

Even in the hectic and constantly changing political life of India, there are some watershed moments. The elections of May 2013 clearly generated such a moment, when the “Modi wave” and first past the post electoral system enabled the Bharatiya Janata Party (BJP). despite getting only 31% of the total votes, to win a majority of seats in the Lok Sabha (the lower house of the Indian Parliament), transforming the national scene. The elections just concluded for the assembly in the city of Delhi, which is not even a full-fledged state, may seem unimportant by contrast, but they too have transformative potential.

Since the national election victory, the BJP—led by Narendra Modi and his henchman Amit Shah (now President of that party)—has seemed unstoppable, winning several state assembly elections and aggressively establishing dominance over its allies, as Modi and Shah have established dominance within the party. The honeymoon period has been extended because the media too generally fell in line, lauding every pronouncement of the Prime Minister and celebrating every declaration of supposedly “new” policies as heralding dramatic transformation.

There were some rumblings of discontent. Some tried to point out that there was a lot of talk without too much content. Thus, policies announced in a blaze of publicity (such as the Swacch Bharat or “Clean India Mission,” or the “Make in India” campaign) were just rehashed versions of policies of the previous government, with slicker media-savvy presentation but less public money. Some noted that the Prime Minister seemed to be more focused on self-promotion and grandiose foreign policy gestures, trying to highlight his supposed “personal chemistry” with various foreign leaders, ranging from U.S. President Barack Obama to Australian Prime Minister Tony Abbott.

Still others observed that many of the promised policy changes of the Modi government had yet to occur, and that too many blatantly pro-big business measures were taken opaquely—including changing clearance rules to allow more environmentally undesirable investment and passing an ordinance that would reduce effective compensation to those who lost their land because of new projects. Instead of the promised “development and good governance,” the so-called “fringe elements” of the ruling coalition that create communal disharmony and attacks on non-Hindu religious communities were given free reign, with discreet silence on the part of the top leadership. Within the BJP, many senior leaders felt marginalized, alienated from and even humiliated by the new axes of national power.

Read the rest of this entry »

Fast Track to Financial Instability

Kevin P. Gallagher

In his State of the Union speech, President Obama said he would submit a bill to Congress that would grant him the fast track authority to finalize the Trans-Pacific Partnership (TPP)—a trade pact with Pacific Rim countries such as Japan, Malaysia, Peru, and Chile. While free trade has brought benefits in the past, tariffs in the world economy are at an all time low and new deals like the TPP offer few new gains in terms of growth and jobs for the American people.

Moreover, deals like the TPP now come with very high risks. Given that tariffs on goods are so low, these sorts of agreements have rebranded bona fide economic regulations as “barriers to trade,” blurring the distinction between protectionism and measures to protect the well-being of the middle class.

According to the most optimistic economic models, the TPP would only boost U.S. GDP between one and three tenths of one percent by 2025. This essentially amounts to a rounding error of just over one hundredth of a percent per year over the next ten years. Even these tiny gains are likely overestimates, given that they assume full employment for the U.S. and all trading partners.

Alongside these small gains, the TPP comes with high costs. The negotiations are conducted in a highly secretive manner, but leaked text on foreign investment and financial services reveals that the TPP rebrands regulations to protect workers and the general public from financial crisis as unfair barriers to trade. When signing on to “market access” provisions—a cornerstone of the TPP–nations must “liberalize” regulations that are seen as lessening the profits of Wall Street.

Read the rest of this entry »

Crisis or Opportunity for Greece?

Martin Khor

Last week a political earthquake took place in Greece when the new party Syriza won the national election on an anti-austerity platform.

The new prime minister, Alexis Tsipras, appointed prominent critics of the creditor-imposed austerity policies to the Cabinet and indicated the new government intends to re-negotiate the bailout loan conditions and also seek debt relief.

The new government looks ready to take on its troika of main creditors (the European Commission, International Monetary Fund and European Central Bank). Some European leaders have called on the government to stick to the obligations linked to the bailout loans. The big fights ahead have great significance not only for Greece but the whole of Europe.

It is a climax of the clash of ideas and policies that has taken place since the start of the global financial crisis in 2008 on how countries facing debt and recession should get out of their dire situation.

Read the rest of this entry »

Is All Growth Good? The Case of China

Sara Hsu

Since the seventies, with the assertion by Gunnar Myrdal that economic development should prioritize equality, economists have increasingly come to believe that not all types of growth are wholly “good.” Growth that ignores human well-being and equality are viewed as problematic. Certainly growth that results in severe environmental destruction, as in the case of China over the past twenty years, cannot be classified as good, either, despite the country’s much-lauded successes during this period.

Real-world views of growth depicted in the mainstream media do not fall in line, however, with the economic development literature. The focus on China’s growth in the news has distracted from a more balanced view of the looming inequality problems or polluting production methods in the world’s most populous nation. As China’s growth has slowed, headlines have read, “China’s Economic Growth at Stake,” “China’s Economic Growth Slows,” and “China’s Second Quarter Growth Slows.”

Even when inequality and pollution problems are described, they are considered separate from the growth process—as “side effects” of growth rather than issues that detract from the extent of growth itself. Headlines read, “China Blocks Access to Air Pollution Data,” “China Declares War on Pollution,” or “China’s Wealth Disparity Erupts in Protest.” It could, however, be argued that such destructive types of growth both take away from “good” growth and dampen positive growth in the long-run, so we should read about growth and its associated externalities within the same context. This is clearest in the case of pollution, where natural resources are destroyed and rendered unusable to future generations.

Read the rest of this entry »

The World Bank: In the Vanguard of an Infrastructure Boom

Nancy Alexander, Guest Blogger

The world is experiencing the “biggest investment boom in human history”, with some $6-9 trillion annually (8 per cent of global GDP) devoted to mega, giga and tera (million, billion, and trillion) dollar projects.

World leaders, specifically the Group of 20 (G20), are staking their reputation on achieving a growth target – namely raising global GDP by 2.1 per cent over current trajectories by 2018. The G20 sees massive infrastructure investment as one of the ‘silver bullets’ that can achieve its target and, by boosting trade and integration, add $2 trillion to the global economy and create millions of jobs.

The private sector, a major driver of the boom, suggests that about $60-70 trillion of additional infrastructure capacity will be needed by 2030 (see Business 20 recommendations). Under current conditions, public and private investments could provide about $30-35 trillion and $10-15 trillion, respectively, leaving a gap of $15-20 trillion. Policy-makers see long-term institutional investors, such as pension funds and sovereign wealth funds, as the key to bridging the gap. These investors control about $85 trillion and seek higher returns on their money, such as infrastructure can provide.

Another major driver of the boom is competition between the ‘West and the rest.’ As described below, the US-led World Bank is one of the institutions in the vanguard of this competition. When Jim Yong Kim assumed the World Bank presidency in 2012, staffers reported that he was presented with “Big Development” and “Small Development” approaches. Kim leans toward “Big Development” – or “transformational” projects.

Read the rest of this entry »

Bracing for Another Storm in Emerging Markets

Kevin P. Gallagher

In 2012, Brazilian President Dilma Roussef scolded U.S. Federal Reserve Chairman Ben Bernanke’s monetary easing policies for creating a “monetary tsunami”: Financial flows to emerging markets that were appreciating currencies, causing asset bubbles, and generally exporting financial instability to the developing world.

Now, as growth increases in the United States and interest rates follow, the tide is turning in emerging markets. Many countries may be facing capital flight and exchange-rate depreciation that could lead to financial instability and weak growth for years to come.

The Brazilian president had a point. Until recently U.S. banks wouldn’t lend in the United States despite the unconventionally low interest rates. There was too little demand in the U.S. economy and emerging market prospects seemed more lucrative.

From 2009 to 2013, countries like Brazil, South Korea, Chile, Colombia, Indonesia, and Taiwan all had wide interest rate differentials with the United States and experienced massive surges of capital flows. The differential between Brazil and the U.S. was more than 10 percentage points for a while—a much better bet than the slow growth in the United States.

Read the rest of this entry »

Time for New Environmentalism

Sunita Narain

2014 has brought India’s environmental movement to a crossroad. On the one hand, there is a greater acceptance of our concerns, but on the other hand, there is also growing resistance against the required action. More importantly, every indicator shows that things on the ground are getting worse. Our rivers are more polluted, more garbage is piling up in our cities, air is increasingly toxic and hazardous waste is just dumped, not managed. Worse, people who should have been in the front line of protection are turning against the environment. They see it as a constraint to local development. They may protest against the pollution from neighbouring mines or factories, but even if they succeed their livelihood from natural resources is not secure. They are caught between mining companies and foresters. Either way, they lose.

We must also realise that even as environmental problems have grown, the institutions for the oversight and management of natural resources have shrunk. While the environmental constituency has grown, core beliefs have been lost. In this way, the underlying politics of environmental movement has been neutered.

It is important we point out the fundamental weaknesses and contradictions in the environmental movement. It is only then that we can deliberate on the direction for future growth of the movement.

Read the rest of this entry »

Statement on Greece

The following Statement on Greece was issued by a group of members of the Scientific Board of the Progressive Economy Initiative, which includes Triple Crisis contributor Ilene Grabel (other signatories to the Statement on Greece include Jean-Paul Fitoussi, James Galbraith Andras Inotai, Louka Katseli, Kate Pickett, and Jill Rubery). The statement on Greece refers to a Call for Change (May 2014)—signed by members of the Scientific Board including Joseph Stiglitz, James K. Galbraith, Ilene Grabel, and Stephany Griffith-Jones, among others—outlining a program to move “from the crisis to a new egalitarian ideal for Europe.” The Call for Change is available here, and is well worth reading in full.

Statement by Members of the Scientific Board

We welcome the decision of the Greek people to elect a new government committed to fundamental change in the policies of Greece and of Europe.

We note the common ground between the principles and programs of the SYRIZA movement in Greece and those of the Call for Change that we prepared for the European Parliament elections in May 2014.

We recognize that this important political event comes at a moment when there is full recognition by the European Commission and the European Central Bank that new ideas and new policies are required to bring economic and political stability and inclusive growth to Europe.

We therefore call on all Europeans to welcome the government of Prime Minister Alexis Tsipras as a constructive partner in the search for a new direction for Europe and for Greece.

We call on the European Commission, the European Central Bank, the IMF and the governments of all European countries to provide financial support and fiscal space during the interval required for the new government of Greece to form and to present its proposals, and then to enter negotiations in good faith with the government of Greece on the policy changes required for that country.

We call on the European Central Bank, the European Commission, the IMF and the governments of all European countries to reject all threats and intimidation aimed at the new government of Greece, and to intervene as necessary to support the financial system of Greece and to quell speculative attacks on that country as negotiations proceed.

Signed:

Jean-Paul Fitoussi
James Galbraith
Ilene Grabel
Andras Inotai
Louka Katseli
Kate Pickett
Jill Rubery

The signers are members of the Scientific Board of the Progressive Economy Initiative, writing in their
personal capacities.

January 26, 2015

Triple Crisis welcomes your comments. Please share your thoughts below.

Triple Crisis is published by