UPDATE: Thanks all for all the great questions. We're signing off now. Sorry if we weren't able to get to your question but this is a crisis that isn't going away soon, so we may be back here again in the future.

I write the Charlemagne column for the Economist, covering European politics and economics for the newspaper from Brussels and around Europe, and have lately focused on the Greek crisis. Phil (/u/PhilipCoggan) is an award-winning business journalist, our Buttonwood columnist and capital markets editor.
All of our Greek coverage, including reports on yesterday's referendum, is gathered at http://www.economist.com/greekcrisis. Our cover leader (free to read) in the current issue explains why we think the crisis will resonate throughout the European Union. The accompanying briefing, reported from Athens, Berlin and Brussels, digs into the story, examining the politics of the referendum, the euro zone's response and Greece's dangerously weak banks. My most recent column explains how the EU has struggled to cope with a Greek government fundamentally opposed to the traditional European way of doing business.

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Comments: 116 • Responses: 19  • Date: 

AGuerrerom21 karma

The Economist has opposed austerity in times of recession after the crisis of 2008. Mainly, because as all the articles written about Europe reflect, these measures risk pushing a country further into more trouble. How can The Economist advise Germany that "... Obsessing about a balanced budget in the teeth of recession is risky" (http://www.economist.com/news/leaders/21625784-german-government-should-invest-money-infrastructure-not-worry-about-balancing-its), while asking the Greeks to accept the terms of the Troika (i.e. more austerity)?

tomnuttallecon30 karma

This is a really good question, and one I've been grappling with lately. As you say, we've been very critical of the austerity-first approach that has governed the eurozone's approach to bailouts, and to a degree its economic governance more broadly. In the last few years Greece has undergone a fiscal adjustment pretty much unprecedented in peacetime, and the brutal effects are obvious in just about any socioeconomic indicator you look at. (Among other things, this helps explain the skyrocketing debt-to-GDP ratio: the denominator has collapsed).

Ideally, we'd prefer a deal that focused on structural reforms to the labour market, better tax collection, a crackdown on oligarchs, liberalised product markets and so forth - and a less harsh fiscal regime. But there's no real alternative to this offer for the Greeks. If they were to leave the eurozone they might well be looking at austerity far more extreme than anything the creditors would prescribe. It's worth remembering that until the second bailout expired last week, the two sides were quibbling over a €7.2bn package, nothing next to the much larger package that is now going to be required. Instead of burning their bridges and achieving nothing, the Greeks should have proved themselves sensible interlocutors, earned trust, restored domestic confidence and then fought for a better long-term deal.

ellavre8 karma

I think your response is very valid and informative, however, when you say: "Instead of burning their bridges and achieving nothing, the Greeks should have proved themselves sensible interlocutors, earned trust, restored domestic confidence and then fought for a better long-term deal."

Isn't that what they tried to do in the past 5 years, when Greece had a center right and center left party in control? They took on the austerity and all they got in return was the removal of any discussion for the much needed debt restructuring from the EuroGroup's agenda. Can you blame them for trying something different this time around?

tomnuttallecon14 karma

I can't blame the Greek voters for seeking a political alternative, even if there were finally signs of some sort of recovery late last year. I can blame the creditors for doing PSI haircuts too late. I can also blame the Syriza-led government for its amateurishness, incompetence, intransigence and its further impoverishment of a country to which it had promised so much.

afisokwlen8 karma

Hello, thanks for the AMA!

Do you think it's economically viable for EU and IMF to possibly instantly lose 400 billions with a Grexit?

How possible do you think a Grexit is since there is no legal framework for it??

tomnuttallecon16 karma

Hi there. I'll take your second question first. You're right that the treaties provide no way of leaving the euro - membership was always supposed to be irreversible. But if Greek banks run out of money and Greece's creditors (the Europeans + IMF) don't provide more help, the Greeks may decide they have to print their own currency to get the banks going again. That's Grexit, regardless of what the treaties say. Moreover, the lawyers in Brussels are quietly working to produce some sort of mechanism that allows a country to quit the euro without leaving the EU, so that a Grexit would be as clean as possible.

Jack_Beauregard5 karma

In case of a Grexit, the dogma of an irreversible Euro would of course no longer uphold. How do you think this would impact ECB monetary policy and Draghi's "Whatever it takes" stance?

tomnuttallecon9 karma

If you follow recent ECB public statements, including interviews with members of its board, you'll see a recurring theme: it will do everything within the constraints of its mandate to contain the fallout from a Grexit. That might mean turning up QE (quantitative easing), it might mean deploying, for the first time, the OMT programme created in the wake of Draghi's "whatever it takes" comment, or it might mean creating new instruments. Basically they are ringfencing vulnerable countries and threatening speculators to come and have a go if they think they're hard enough, as we say in the UK.

WarrenHuffIt5 karma

Thanks for the AMA!

What do you think the real-life ramifications are of Varoufakis stepping down? Will this make a deal any more likely?

tomnuttallecon10 karma

Not much. Mr Varoufakis infuriated his fellow eurozone finance ministers by lecturing them about macroeconomics without engaging in serious negotiations over the bailout his government sought. So Eurogroup meetings may be a little quieter. But these disputes have been largely about substance, not style - and Mr Varoufakis's replacement as finance minister, Euclid Tsakalotos, is no softie. Indeed, some suspect his presence could make striking a deal even more difficult.

spenguins1115 karma

Are you optimistic about the future of the European Union?

tomnuttallecon12 karma

Yes. Optimism is pretty much a job requirement at the Economist.

grahamwell5 karma

I'm confused by the current position of the IMF. How do you think they've handled the situation to date and do you think that their position is changing, particularly with regard to accommodating the Greek demand for debt writedowns in parallel with reforms?

tomnuttallecon9 karma

Good q. Ever since these eurozone bailouts started back in 2010 the IMF has taken a different position on debt than the Europeans. For the Fund it's imperative that the "debt sustainability" sums add up, and that means growth-enhancing reforms as well as debt restructuring. But for many eurozone countries providing more help on debt to the Greeks is politically toxic. The paper the IMF released last week had interesting numbers, but its arguments were not news to anyone who's been following this story.

grahamwell2 karma

Thanks. I read this - naively - as suggesting that the IMF and the Greeks are not particularly far apart on principles, although there may be some scepticism about the numbers and the Greek's ability to deliver reform. The Eurogroup however cannot budge on the book value of the debt, preferring infinite extensions and discounted rates. Yet the IMF seem to have walked away. Are they likely to return and might they yet bring about a compromise?

All those who know her seem to think highly of Christine Lagarde, nevertheless she hasn't been exactly a success here. Am I wrong to think that she must shoulder much of the blame?

tomnuttallecon9 karma

IMF and Greeks have common ground on debt, but that's only half the story. Read the IMF's report last week and, as my colleague explains, you'll see a pretty damning indictment of Greece's failure to implement reforms. Of course, the Greek government forgets that bit when it brandishes the IMF report in its talks with its European creditors. NB note that the IMF is not necessarily calling for explicit haircuts - under certain scenarios it merely suggests extending grace periods and maturities.

As for the future involvement of the IMF, it's hard to see the Germans signing up to a third bailout without having the Fund on board (the Germans think it keeps the softies at the EU in line). But the IMF will not disburse any funds to Greece until it meets the €1.5 billion payment it defaulted on last week.

JaziTricks3 karma

Moral hazard seems to be nearly absent from the conversation. How come?

Obviously, every debtor can stop working burn his house and say I'm poor.

Also, the brash tactics and posting Shaueble pictures etc. seems outrageous. How come its being handled as if nothing?

Not asking side taking. Rather an analysis on why all this is so weirdly ignored.....

tomnuttallecon13 karma

Believe me, moral hazard is at the very heart of this conversation. It has been throughout the eurozone's troubled years. The Germans and others have always ensured that bailout programmes are tough, and have been happy to see market pressure in the form of rising sovereign bond yields be used for political ends (it was ten-year yields at 7%, rather than his bunga-bunga parties, that did for Berlusconi in 2011). More than getting their money back, the Germans are keen to avoid letting the Greeks get away with violating the rules of the game for fear of what might happen next time. There's a political component, too - Spain and Portugal have been v tough on Greece because they don't want their own voters to get the idea that they can elect a radical-left government that will get its debt written off with impunity.

furtador3 karma

Don't you guys think some countries like Germany have benefited from lowered real wages (thus increased competivity) after the entrance in the Eurozone of poorer countries like Portugal and Greece? Don't they have the moral duty to help these countries that suffered from the opposite effect?

tomnuttallecon6 karma

It's a fair point. Of course, the Germans would say they have helped these countries and then some, by pouring billions of taxpayers' money into vast bailouts.

Matt24112 karma

Can I also ask... What has the ECB just decided on? I don't understand the cryptic language of its statement. Will they increase liquidity for greek banks or not?

tomnuttallecon4 karma

No, liquidity support (ELA) remains unchanged. They appear to be increasing the haircuts they apply to the collateral Greek banks post to obtain that liquidity, which obviously brings the crunch point closer.

prendea42 karma

What are your thoughts on the IMF's call for a 20 year grace period?

tomnuttallecon6 karma

Everyone knows Greece's debt load - nearly 180% of GDP - is unsustainable, although views differ on how effective gestures like extending grace periods and maturities would be, given that Greece's debt-servicing costs are already fairly low. If the Greek government could convince its creditors that it is serious about reforms to things like pensions and VAT, it might ultimately be able to secure something like what the IMF is proposing (note that Greece already has a ten-year grace period on most of its European loans). Tsipras, the Greek PM, says debt restructuring is essential, and deploys last week's IMF paper as evidence. But trust and goodwill on the European side is so low that serious talks on debt will have to wait until the reform issues have been agreed, and probably implemented.

eebinger12 karma

I realize that voting no to the recent referendum has declined the current deal offered by creditors and the EU. However, isn't any deal better than none when Greece is in such a bad situation?

tomnuttallecon5 karma

Yes, I think it probably is. But Tsipras told Greeks that a huge "no" vote would strengthen his negotiating hand and enable him to secure a better deal. In my opinion, this was either dishonest or deluded.

thrownwa2 karma

How will people in countries like Spain and Italy see this development? If Greece succeeds, will it inspire similar referendums in other countries of European Union?

tomnuttallecon4 karma

The similarities can be overdone. Spain and Italy are not basket cases like Greece, and neither has been in a bailout (bar a small programme to recapitalise Spanish banks a few years ago). Yet Spain has Podemos, a Syriza-like party that has performed well in recent elections, and holds a general election in the autumn. Most Italian parties, bar the ruling one, have turned against the euro. Policymakers can't be (and aren't) blind to the potential consequences of their dealings with Greece for other countries. Success for Syriza could embolden similar parties elsewhere.

chazzwozzerbxl2 karma

Thanks for the AMA!

How do you see the current Franco-German crack over the debt restructuring? How do you think will play out in the coming days?

Second question, if I may. What impact do you think the Greek crisis will have on its neighbours, e.g. Turkey?

tomnuttallecon3 karma

I wouldn't read too much into it. The French may be lending the Greeks an ear, but they're not going to go to war with the Germans over it.

EvlFlap1 karma

As a History student from Dijsselbloem-land, with a minor in European Economics, (and a study background in engineering) how much of a chance do I have of getting an internship at The Economist? Say, second semester next year? (also: was this -an improvised part of- Varoufakis plan all along? As part of his stakeholders analysis, getting out of the way to 'make it all about the people versus Abstract Institutions' in Northern European public perception?)

tomnuttallecon2 karma

Read the paper each week - our regular internships and fellowships are advertised therein.

BlondeJaneBlonde1 karma

In light of your previous journalistic experience, how does the Greece situation feel to you? Does it remind you of the fall of the Berlin Wall, the 2008 global financial crisis, Argentina's default? What's the zeitgeist in the press? A lot of the Twitter feeds I'm following have a slumber party atmosphere.

tomnuttallecon3 karma

Happily I'm too young to know. Phil may have a different perspective ;)

Swagger_Muffin691 karma

What, in your opinion, has made Greeks more reactionary towards austerity in contrast with other countries where similar measures have been imposed?

tomnuttallecon3 karma

Bar a Balt or two, there are no other countries where similar measures have been imposed. This piece does a good job of walking you through Greece's extraordinary adjustment since 2010.

Matt24111 karma

My question is short and simple: Would leaving the Euro and adopting the Drachma be beneficial for the Greek economy? Initially, I thought this was the best option for Greece to start growing in the short run: exporters and the tourist industry wouldn't have to deal with a strong currency which makes them uncompetitive. However, I've also heard analysts say that the country is already more competitive because their prices have fallen, so having a new currency wouldn't change matters.

What do you think?

tomnuttallecon3 karma

Greece doesn't export much and, as you say, the competitiveness gain already achieved via lower wages does not seem to have done much for exports. The trade balance has improved largely because Greece imports less. You'd get a tourism boost and a bit of stuff on agriculture, but that's about it. But there is also the question of import substitution - with a cheaper drachma, to what extent could Greece improve its trade balance further by producing some of the stuff it currently imports?