These are suggestions from Greece's Finance Minister Yanis Varoufakis:
"To restore investment and credit to levels consistent with economic escape velocity, a recovering Greece will require two new public institutions that work side by side with the private sector and with European institutions: A development bank that harnesses public assets and a “bad bank” that enables the banking system to get out from under their non-performing assets and restore the flow of credit to profitable, export-oriented firms.
Imagine a development bank levering up collateral that comprises post-privatization equity retained by the state and other assets (for example, real estate) that could easily be made more valuable (and collateralized) by reforming their property rights. Imagine that it links the European Investment Bank and the European Commission President Jean-Claude Juncker’s €315 billion ($350 billion) investment plan with Greece’s private sector. Instead of being viewed as a fire sale to fill fiscal holes, privatization would be part of a grand public-private partnership for development.
Imagine further that the “bad bank” helps the financial sector, which was recapitalized generously by strained Greek taxpayers in the midst of the crisis, to shed their legacy of non-performing loans and unclog their financial plumbing. In concert with the development bank’s virtuous impact, credit and investment flows would flood the Greek economy’s hitherto arid realms, eventually helping the bad bank turn a profit and become “good.”
Finally, imagine the effect of all of this on Greece’s financial, fiscal, and social-security ecosystem: With bank shares skyrocketing, our state’s losses from their recapitalization would be extinguished as its equity in them appreciates. Meanwhile, the development bank’s dividends would be channeled into the long-suffering pension funds, which were abruptly de-capitalized in 2012 (owing to the “haircut” on their holdings of Greek government bonds)."
I'm wondering if this type of blueprint or recovery plan is too late in any way. How long would it take to create two new public institutions? How much money would it cost to create these institutions and start them up? Greece will have to continue to make payments on its debt and I'm not sure these public institutions will be able to aid in the country's recovery by that time. While the Finance Minister makes good suggestions in nature, I wonder if this plan is realistically too late.
ReplyDeleteI completely agree with Cameron in that creating the two institutions will require time that Greece may not have while paying off its debts. However, the concept of the two institutions is good, and Greece should consider whether this method will be beneficial.
ReplyDeleteCam makes a great point: is it just too late in the game for this plan to work? Honestly, I don't know, but logically it seems too late. If this plan would've came out when Greece first defaulted it could have worked, but now I'm extremely skeptical. It is good to see that Greece is getting some better plans and ideas out there than before. Maybe its new Finance Minister has something to do with that.
ReplyDeleteI agree with everything that's been said, I think it is too late for Greece to implement this plan in order to fix its economy to stay in the EU. However, I don't think it's a bad idea for the country to go through with this plan in order to avoid such devastating economic dysfunction in the future, when they are likely to be out of the EU and on its own.
ReplyDeleteI think that it is only too late if the creditors do not delay the payments. Giving Greece the time to setup the framework and show actual progress in doing so could guarantee delayed payment if they hit certain benchmarks in development of the two institutions. It could be too little too late, but it doesn't have to be.
ReplyDeleteVaroufakis has a good plan for his country, but it will be nice to implement the plan in the long run. In fact, Varoufakis has just not understood the urgency of his country. First, Greece needs to take care of its current issues (the debt that has to be payed) then it can implement its Finance Minister's plan.
ReplyDeleteI think Nolan brings about a good point. Greece may have a small shot with this plan but only if their creditors allow for a deployment in the payments. Therefore, I would argue it may be worth the shot to bring this idea to their creditors. I mean given the seriousness of the country's debt issue, what can the Greek government possible lose in asking for delaying the payment periods as the result the new plan. All in all, I think Greece may have a very small window of opportunity and should examine if it is at all possible.
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