Grexit Drama: What Happens Next

Grexit yes, Grexit no? That is the question. Now I feel fairly confident to predict what will happen next, following Sunday's referendum that led to a resounding 61 to 39 percent win for the "No" - meaning the Greek people overwhelmingly chose "no more austerity". 

There was one crucial move on Monday: would the European Central Bank (ECB) keep the Greek banking system on life support, maintaining emergency liquidity assistance (ELA) funding, yes or no? If it didn't, Greece would immediately collapse and the ECB would get the blame. 

The ECB, in line with Mario Draghi's cautious style, decided not to get the blame and extended ELA, capping it at the level of June 26 (that is €88.6 billion). That  gives breathing space to the Eurozone politicians to take their decisions.

Breathing space but not very much: a total of 48 hours; as I write now, that's more like 24 hours. On Wednesday, the ECB will review its decision after the Eurogroup and Eurosummit have met today.

Screenshot Source: to see the video click Bloomberg

So today, July 7,  is D-day for Europe and the Euro

How is it likely to go? 

The logic of the situation is fairly obvious, this is like a game of chess: certain moves make sense and if the players are any good, they will make them. If the players are bad or stupid, they won't.

So far, over the past five months of negotiations, some players have proved a little better than others, like the IMF that has started talking about "debt sustainability" as a goal for the negotiations - technospeak for forgiving part of the debt (or extending maturity, which comes to the same thing) to lower it to a level that the Greeks can afford to pay without seeing their economy unwind. The players that have proved very bad are in the Eurogroup, the 18 Eurozone Finance Ministers facing Greece at the negotiation table.  

Led by the German finance minister  Wolfgang Schäuble whose understanding of economics appears singularly limited, they have shown themselves to be stupefyingly  insensitive to both the humanitarian and political dimension of the Greek situation. All they worry about is to come home free of any commitment to reduce the Greek debt  - a knee-jerk response to a conservative section of the European population - very large in Germany - that doesn't understand the stakes at hand, people who are only worried that they might have to "pay more taxes" and feel the profligate Greeks "deserve what they get", austerity and reform are the only way out.

As the Greek Debt Crisis Plays Out, a Similar Default Threatens One of the United States' territories: Puerto Rico

Is anyone witnessing a similar reaction among American citizens and Treasury officials to the news that Puerto Rico cannot pay its $72 billion debt? Of course not. 

But then the American dollar is a currency walking on two legs: a central bank (the Federal Reserve) and a Treasury. The Euro hobbles along on one leg only, the ECB.

There is no common Treasury for the Euro, the way it is for the American dollar. Small wonder the Euro's value dropped yesterday in currency markets. The Euro's "treasury", for better or for worse (and most likely for worse) is the Eurogroup.

What Greece is Likely to Bring to the Negotiation Table

I would be surprised if we are told by the press exactly what the Greek offer will be today. We will no doubt be shown in the course of the day how the Eurogroup finance ministers react to it - and this is not something anyone can foretell and I won't try to do it here. But I'm willing to bet that the blame game will start with a vengeance, with each one asserting he's "done his best" to save Greece from Grexit and that the fault for the negative outcome is entirely Greece's.

I wonder how they can honestly think we believe them? Our European leaders are definitely taking us for a ride. But the offer Greece will put on the table is easy to guess, it is necessarily shaped by the result of the referendum

To try and smooth the pill, Tsipras, the Greek Prime Minister, has changed Varoufakis, his finance minister judged to be too outspoken, the kind of person that doesn't fit into the Eurogroup ethos of ties and double-breasted suits. He's appointed  Euclid Tsakalotos, Varoufakis' deputy who, in spite of being Oxford-educated and soft-spoken, shares with him a love for motorcycles and backpacks.

Screenshot Source: RT
 He looks nice, but as Ms. Merkel said upon learning of the appointment, it doesn't change much to the fact that Greece needs to come with proposals.

So what are they going to be? Obviously a request for some form of debt relief - it is likely that an extension of the payment period from 20 years to 30 or 40 years will be on the table. And in return for debt relief, what will creditors get?  Along with that request, and in line with the "no" vote, I am fairly certain Greece will decline to further pursue austerity and pension reforms. It will simply point to the referendum results and say it can't go down that road, full stop.

So what next? The creditors can:

(1) agree and let Greece off the hook - an unlikely outcome because if they do that with Greece, why not do the same for the other EU indebted countries, Portugal, Spain etc?

(2) disagree and show Greece the door, amounting to instant Grexit - an unlikely outcome even though the creditors may feel they have now safety valves in place that they didn't have five years ago, like the European Stability Mechanism and recent permission given to the ECB to pursue Federal Reserve-style Quantitative Easing policies that could contain any "domino effect" from a Grexit. The problem however is that those "safety valves" have never been tested and you could always have an effect like Prince Rupert's Drop (for an amazing video explaining this scientific mystery, click here) : a sudden, unexpected explosion - or rather, in this case, an implosion of the Euro and Eurozone economies. With untold consequences worldwide.

(3) disagree and slowly ease Greece out of the Euro: after all, the Greek economy only amounts to 2% of the total Eurozone wealth, a smooth easing should be technically possible - a progressive plan, step-by-step, maintaining the Greek banking system on life support while the Drachma is put into place, a process that would take a minimum of 6 months (my guess, anyone's guess welcome). This would allow Greece to follow Iceland's example, living on with a devalued Drachma that would support a spurt in exports and tourism. And presumably a return to a flourishing economy.

Option (3) could be the most likely - I prefer option (1). 

But Euro creditors would do well to remember that their decisions are never entirely and only economic. They have fallout effects that could be deleterious to the survival of the Euro and more than that, to the very goal of European construction. Anyone remembers what a United Europe was supposed to be, the values of solidarity and fraternity it was supposed to entail? Watching the rise of nationalistic parties in Europe from Marine Le Pen to Beppe Grillo, one does wonder whether Europeans remember the atrocities of World War II and how close Europe came to the brink. So what are the stakes?

The Humanitarian and Political Stakes of a Grexit

A poorly managed Grexit could lead to a full-blown humanitarian crisis in Greece, with people literally going hungry and falling sick.

A poorly managed Grexit could cause Greece to fall in the arms of Russia and China. They are already knocking at the door, Russia with a gas pipeline, China with a foot in Greek ports, in particular the Piraeus, as the German magazine Spiegel recently documented (see here):

Is that what Europe wants?

PS: The French economist Piketty (best-selling author of Capital in the 21st Century) has the final word: 
- first, telling off the Germans and 
- next, proposing a conference on all of Europe's debt, just the way it was done after World War II. And he concludes by noting:
Those who want to chase Greece out of the euro zone today will end up on the trash heap of history.
(Source:  interview on Die Zeit , click here


What the United Nations is Not: the Two Mistakes Made at its Birth

Participants in the San Francisco Conference held from 25 April to 26 June 1945, to draft the Charter of the United Nations and the Statute of the International Court of Justice. The text was based on earlier proposals, negotiated in various subsidiary bodies, and finally adopted unanimously in a plenary meeting of the Conference on 25 June 1945.(Source: Dag Hammarskjold Library, UN documentation)

The UN is not what its founding fathers envisaged.

Looking back at 70 years of activities, results are hugely disappointing, allowing liberal billionnaires like George Soros to thunder (here in the New York Review of Books):
The UN has failed to address any of the major conflicts since the end of the cold war; the 2009 Copenhagen Climate Change Conference left a sour aftertaste; the World Trade Organization hasn’t concluded a major trade round since 1994. The International Monetary Fund’s legitimacy is increasingly questioned because of its outdated governance, and the G20, which emerged during the financial crisis of 2008 as a potentially powerful instrument of international cooperation, seems to have lost its way. 
The G-20 has "lost its way", really? I doubt it. As I argued in a previous post (to read, scroll down or click here), the G-20 cannot hope to replace the UN anymore than the G-7 can replace the Security Council. They can only hope to "fit into" the concert of nations and strengthen decision making in the UN by throwing the weight of the world's major economies behind certain policies, like educating women or addressing global warming.

George Soros at the Munich Security
Conference in 2011 (source: here)
Neither the G-7 or the G-20 are international organizations backed by a permanent Secretariat the way the UN is. And neither cover the range of activities and specialized areas of work, the way the UN does - from monitoring the WHO Framework Convention on Tobacco Control to the International Criminal Court (I blogged about it here). And of course, while we can all agree with Mr. Soros that the 2009 Copenhagen Climate Change Conference "left a sour aftertaste", hopes are high that the upcoming Climate Conference in Paris won't.

Times have changed: two of the world's main polluters (China and the United States) have had a change of heart and are beginning to take the matter seriously - at least China is, even if the situation in the US is moot, as a result of the activism of the (mostly Republican) climate change deniers.

Mr. Soros' main point in that article is another one: the world has  sunk into "global disorder". He argues that the European Union is weak while the power of Putin's Russia is rising, sowing discord across Europe. In short, there is an "international governance crisis" and, as of now, the big world players are inevitably China and the United States.

As he sees it, the next battle between the two giants is going to take place behind closed doors at the end of 2015, in the arcane corridors of the International Monetary Fund (IMF), as China seeks SDR status for its currency, the Renminbi - and that will require overcoming America's unwillingness to see the dollar treated on a par with China's currency.

IMF Headquarters in Washington, D.C. (Source: here)

Interestingly enough, if you will allow me this aside, the IMF is part of the extended UN family, along with the World Bank, as it explains on its website (see here): both institutions share with the rest of the UN the "same goal of raising living standards in their member countries. Their approaches to this goal are complementary, with the IMF focusing on macroeconomic issues and the World Bank concentrating on long-term economic development and poverty reduction."

Any serious analysis of the UN role in world politics cannot eschew either of those institutions , also known as the Bretton Woods institutions, from the name of the place where they were founded:

The Golden Room in the Washington Hotel, N.H. where the Bretton Woods participants
signed the agreements creating the IMF and the World Bank in July 1944 (source: Barry Livingstone)
As these battles take place, often among technocrats, the values and convictions of UN staff matter and can make the difference.

In this particular case, it seems that IMF staff is sympathetic to the Chinese request and for several years now, the IMF Managing Director (the present one, Christine Lagarde and the previous one, Dominique Strauss Kahn) have been pushing for an opening of IMF governance to allow big emerging economies like China and India to play their role.

Mr. Soros argues convincingly that any break in China and US relations could push China in Russia's arms and thus create the basis for a Third World War - perhaps not a war, but certainly a return to a particularly freezing form of Cold War, and this seems to be already happening again.

This said, Mr. Soros is right: the UN at best has helped to stay conflicts, freezing them in some cases over decades with never-ending peace-keeping operations, but it has failed to solve them. Why?

Two mistakes were made when the UN was created: one is well-known and the other is forgotten.

The well-known one is of course giving a veto power at the Security Council to the winners of World War II, the so-called Big Five (France, China, Russia, the United Kingdom and the United States) - thus effectively blocking the UN Security Council. This was done by the UN founding fathers under the assumption that, in view of the disaster of the UN's precursor organization, the League of Nations that had been abandoned by disgruntled Big Powers, something had to be done to entice them to join the UN and remain in it. Eventually, the carrot chosen was the veto power that made the Big Five "primus inter pares", first among equals - with the catastrophic consequences we all know.

Palais des Nations in Geneva, the headquarters of the League of Nations
from 1936 to its demise in 1946 (source here)
The second is to have allowed the permanent suspension in July 1948  of  the Military Staff Commission (MSC) after only 29 months of activity. What few outside of the UN system realized at the time was that when the MSC ceased to function, a major supporting pillar of the UN collapsed.

The basic idea behind the MSC was simple: it was envisaged that a powerful joint UN military staff would advise the Security Council and execute its orders, and would also bring about a reduction in armaments and disarmament. Over its short existence, it even went so far as to formulate exactly what "core army" the UN would need:
  • Airforce: 750 bombers, 500 fighters, 25 others, total: 1500
  • Naval Forces: 3 battleships, 6 carrier (4 fleet, 2 light), 12 cruisers, 33 destroyers, 64 frigates, 24 minesweepers, 14 submarines, assault life for four brigade groups (16,000 men)
  • Army: 15 divisions (375,000 - 450,000 men)
A very small army, really, and it was thought that the Big Five on the Security Council would provide most of it, indeed, that this would bring them to act together.

With the onset of the Cold War, that idea obviously died. (For more details, if you're curious, here's an excellent article by Felicity Hill, of the Women's International League for Peace and Freedom, published on the Global Policy Forum, click here).

Ten years later, the General Assembly was unable to review and modify the UN Charter as it was supposed to do. The UN founding fathers had always felt that their creation would probably require revision and they had allowed for it. But that opportunity to revise and improve was not taken. The Cold War had settled in, dialogue had broken down and the dream of a strong UN capable of presiding over the concert of nations never came to be.

In short, the UN was left without any "teeth".

Small wonder the UN, as George Soros pointed out,  never helped solve any conflict. The problem started right away, in 1948. And Soros' call for a "strategic partnership between China and the US" could well be, for the time being, our only real guarantee for a peaceful world. The road to achieving a functioning UN is a long, uphill one...

My next post will be about "What the United Nations Really Is", the limitations as we have seen here, but also the hidden strength, that ingredient that sustains its "soft power".

PS: As I wrote this, the drama of the referendum in Greece unfolded, with the "no" to further austerity measures winning out by an unexpectedly large margin, 61 to 39 (much to my delight - if I had been Greek, I would have voted no).  For now, the immediate problem is to save the Greek banking system from collapse. If the ECB doesn't do it, then expect a humanitarian crisis in Greece! And as Paul Krugman notes in his excellent op-ed:
The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose.
He concludes that the better option for Greece might be to exit the Euro anyway. He could be right. We'll see, I'll get back to this problem in a later post when an analysis can be done calmly, after the dust has settled and the reactions of all involved parties have become clear.



Why the G-7 and G-20 Cannot Replace the United Nations

This is the continuation of the previous post which asked the question: Does the United Nations Still Matter, considering the rise of the G-7 and G-20 that are summit meetings of the most important countries in the world (if you haven't read it, scroll down or click here).  

Oxfam protesters message to G-7 (source here)

Are G-7 and G-20 meetings nothing but useless talk? 

The G-20, as noted in the last post, copies the model of the G-7 and is organized along the same lines, following the same modus operandi. For our purpose - to determine how important such "summits" are in relation to the United Nations - it will be sufficient to take a close look at the G-7. 

The first and most striking observation is that the G-7 doesn't have, in fact, any “teeth” compared to the UN. It only functions sporadically and doesn't have a permanent work force dedicated to organizing its meetings year after year and carrying out the unanimous decisions arrived at, the so-called "resolutions".  

As pointed out on the G-7/Germany website in the FAQ section
That means that it does not adopt resolutions that have direct legal effect. The G7 has neither its own administrative apparatus with a permanent secretariat nor someone who acts as its members’ permanent representative.That is why the rotating presidency is so important.
Indeed, the rotating presidency is key: every year, a new country takes on itself the task of organizing the meeting. After Germany, the following countries will assume the G-7 presidency: 
  1. Japan in 2016
  2. Italy in 2017
  3. Canada in 2018
  4. France in 2019
  5. The USA in 2020
Thus G-7 meetings are "informal" summits and don't follow UN protocol with a chairman, vice-chairman and rules for speaking (for example, calls to limit speaking times etc). They are simply an occasion for heads of state to meet in person in a secluded, secure environment, informally sitting around a table.

Every G-7 agenda covers current issues arising in the global economy and in foreign, security and development policy with the host country free to add topics it wants addressed. At the June 2015 meeting, preparations for two major UN conferences came under consideration:  (1) the  Climate Change Conference to be held in Paris in December and (2) the UN Summit to adopt the post-2015 Agenda for Sustainable Development to be held in New York in September. Germany added to the agenda a series of  health and gender issues, concretely: 

  • Protecting the marine environment, marine biodiversity and environmental sustainability/resource protection;
  • Combating antibiotic resistance and effectively fighting neglected and poverty-related diseases (e.g. Ebola);
  • Factoring in labour, health and environmental protection in retail and supplier chains around the world;
  • Promoting women’s self-employment and supporting the vocational training of women in developing countries. 
To adequately cover those issues, three preparatory meetings were held prior to the G-7 meeting for all participating  ministries directly involved in the above themes:

  • A meeting of the G7 foreign ministers in Lübeck on 14/15 April 2015,
  • A meeting of the G7 energy ministers in Hamburg on 11/12 May 2015,
  • A meeting of the G7 finance ministers in Dresden from 27 to 29 May 2015.
The orchestration of a G-7 meeting, since it lacks a secretariat, is in the hands of government negotiators appointed for the occasion, so-called "sherpas", as explained on the website:
The governments’ chief negotiators, known as sherpas, do the preparatory and follow-up work. They establish on which issues agreement can be reached and where there is still need for discussion, and they prepare the final declarations containing the key outcomes of the summit.
Prof. Lars-Hendrick Rolle (source Wkipedia)
In the case of Germany, the chief sherpa was the economic and financial policy advisor to Ms. Merkel, Prof. Lars-Hendrik Rölle, with a stellar cv, starting as a research assistant in the Economics department, Pennsylvania U. in 1983 and ending as President of the European School of Management and Technology in Berlin (2006-2011) before becoming advisor to the Chancellor.

How expensive is such an exercise?

Obviously very costly considering that in addition to the German government staff, the travel of all participants and the entertainment expenses, it also involves considerable security police - it was reported by the UK Guardian (here) that 17,000 police dotted the forests around Schloss Elmau where the meeting took place, and that President Obama brought a retinue of 2,000 persons (!).

Yet, the G-7 website is diplomatically silent on the subject, merely saying the cost "won’t become apparent until after the summit is over" and Ms. Merkel has strenuously contested that meeting expenses shot over €200 million. So, at the time of writing this post, the cost is still not apparent and if you have any information that might have surfaced in the German press, please share in the comments...

What can the G-7 achieve? This is the more fundamental question and in this regard, the G-7 website waxes poetic:
The decisions the G7 takes in full view of the world have a huge political impact. Experts refer to this as their binding effect. At home, the heads of state and government are also measured by what they achieve and agree at G7 meetings.
A "binding effect", so the "experts" say? Are heads of states and governments really "measured" at home "by what they achieve and agree at G-7 meetings"? One may be permitted doubt it. The UK Guardian defined it as a "26 hour oompah" and noted that the Bavarian people were considerably upset and protesters viewed the meeting as an elitist club of industrial countries pursuing their own interests at the expense of the rest of the world.

Yes, it does sound like much ado about nothing. Yet, there is a linkage with the UN, and a lively one, as highlighted at the G-7 when an "outreach meeting" on the last day of the G-7 in Germany, with major UN organizations invited to participate, notably the UN Secretary General.

The Linkage with the United Nations. This kind of meeting serves to flag the intentions of the big powers (G-7) and important economies (G-20). And that helps UN member countries to jockey in position and decide whether to "follow" the G-7 or G-20 when they next meet at the UN.

This is the point:  membership with the United Nations overlaps and that is what makes those meetings useful and worth following - especially for UN delegates. 

But not only them. 

UN staff is also deeply interested because when Big Powers (G-7) and Big Economies (G-20) indicate priorities in development aid - as the G-7 just did, for example calling for investment in health and  women's education, UN staff working in the technical agencies concerned with women, education and health perk up, hoping that the leaders' good intentions will translate in donor contributions for their own organizations and development projects.

This said, the G-7 and G-20 meetings do not achieve anything more than just that: indicate what official positions will be in any other future UN meetings where “real” decisions are eventually made – meaning decisions with consequences on the ground in terms of action taken. 

To argue that "real decisions" are taken within the United Nations might strike some as absurd - one hears too much in the media about UN failures to take action to believe that somehow the UN is stronger than the G-7 or G-20.

Ebola Challenges the World Health Organization (see Impakter)
Yet this is the case.

Take one recent example: Ebola.

This was uppermost on Ms.Merkel's mind in 2015, along with the other issues, the empowerment of women,  marine pollution, energy efficiency and retail and supply chain standards. Quite a list - but Ebola is high up there. And Germany wants to ensure that there is no repeat in future, that the world is ready to tackle the next epidemic.

In the weeks leading up to the G-7,  Ms. Merkel reportedly had long talks with Sars and Ebola experts handpicked for her by Bill Gates. So UN specialized agencies, when reading the G-7 summit report will take due note of the fact that Germany is strongly behind measures to strengthen the World Health Organization - we all remember how it was notoriously ill-equipped to address the Ebola emergency when it broke out (see my article about the WHO on Impakter, here).

I only have one closing comment, a footnote really: it is a pity the "outreach meeting" at the G-7 included so many heads of the UN, with the IMF, the World Bank and the ILO participating, but left out the World Health Organization...An oversight?

Now that we have established that the G-7 and G-20 cannot replace the United Nations, leaving it the only international organization with the task of addressing global issues, we shall explore in the next series of posts how the UN does it.


The United Nations vs. the G-7 and the G-20: Does the UN Still Matter?

This is my first post about the UN and my upcoming non-fiction book about it - if you missed the "turn" my blog recently took, read the post explaining my approach to "blogging my book" here. What I want to do is share with you some of the major findings that will be presented in the book (tentative title: "Soft Power, How Politics Work at the United Nations").
UN Member States

In a globalized world where traditional states are losing sovereignty to new actors like transnational corporations,  the question arises whether the United Nations, originally conceived as a “club of governments”, still plays a role in international politics. 

In fact, transnationals have been larger and moved more capital than many UN member states; a 2007 UNCTAD report provided an arresting snapshot of the "universe of the largest transnational corporations", pointing out that transnational corporations have been driving growth in global trade and foreign direct investment in all sectors since the late 20th century. The Gross National Product and total population of the smaller UN member states are but a fraction of the assets and staff of transnational corporations.
Château de Rambouillet 2013.JPG
Chateau de Rambouillet
Worse, the founding members of the United Nations started giving signs of wanting to walk out on the UN just thirty years after its creation. 

The heads of  advanced, industrialized nations had their first yearly meeting in France at the Chateau de Rambouillet, hosted by Valérie Giscard d'Estaing in November 1975. For three days, the heads of  France, West Germany, Italy, Japan, the United Kingdom and the United States met as friends and got to know each other on a personal basis, a first in international politics and a sea change in diplomacy. The G-7 relegated forever to the past the modus operandi of the Congress of Vienna, with star diplomats like Talleyrand.

The following year, Canada joined and the G-6 became the G-7. 

Over the next forty years, the G-7 became institutionalized outside the UN system. With Russia it became briefly the G-8; when Putin invaded Crimea, the group "punished" him and returned to its G-7 level.

On the face of it, the G-7 appeared to be set to displace the main UN political pillar, in particular the Security Council. Consider that the Security Council is in fact often weakened by its five permanent members - Britain, China, France, Russia and the United States - who can use their veto power to stop the UN as a whole from taking any action. The Soviet Union notoriously blocked the UN throughout the Cold War and the world knew a strong UN Security Council only for a short period after the fall of the Berlin Wall. Now we are back to the familiar blocking pattern, with Russia, China and the US threatening vetoes whenever their friends come under attack, like Syria for the former two and Israel for the latter.

When a single veto-wielding country can condition the world, we are getting perilously close to hell. 

Is the G-7 an attempt at a solution? Hardly. It does upgrade  Germany Italy and Japan to the level of "Big Powers" - something that has never happened at the UN Security Council though it is much talked about .  But it misses out on China and Russia.

Yet, in spite of the shortcomings, the example set by this select group of Big Powers was eventually imitated. 

There was, starting in 1997, and in quick succession, the G-22 and the G-33. Finally, in 1999, an early form of the G-20 was set up to focus on financial issues with the aim of promoting international financial stability; it pulled together all the major developed and developing countries, 19 individual countries plus the European Union (with Spain as a permanent guest):

Dark blue: G-20 member countries; Light blue: EU countries not individually represented (Source: "G20" by Marcin )

As you can see in this map, the G-20 does have Russia and China as members. But it leaves out most of Africa and a good chunk of Latin America and Asia (four countries that had been part of the G-22 have now fallen out, Hong Kong, Singapore, Malaysia and Thailand). Yet the G-20 accounts for 85% of the world gross national product, 80% of world trade and two thirds of the world population.  And the G-20, being a club of big nations, neatly by-passes the annoying problem of UN member states that are smaller than transnational corporations.

In 2008, the G-20 started to include heads of state and expanded its mandate, claiming to be the "main economic council of wealthy nations." In short, the G-20 appeared to be trying to displace one of the two big pillars of the United Nations, ECOSOC, the Economic and Social Council.

Can the G-20 hope to replace the United Nations in its economic and social mission? Can the G-7 do politically what the Security Council can't?

So far, neither the G-20 or the G-7 have achieved anything memorable. When they meet, protesters activate themselves far more than they do with the United Nations - but they need not worry. The  announcements resulting from G-20 and G-7 meetings always correspond to the lowest common denominator, those rare issues on which nobody can disagree or dares to publicly disagree. 

Schloss Elmau, Germany
The latest G-7 meeting that took place in Germany on 7-8 June 2015 at Schloss Elmau is a case in point. The subjects under discussion? On day one: trade; on day two: climate, energy and development.

Broad subjects, something for everyone around the table. 

Trade this time was about the transatlantic free trade agreement and everyone nodded assent without giving specifics. 

Climate, energy and development was about preparations for the UN Climate Change Conference due to take place in Paris at the end of the year and about development cooperation, opportunities for women and health - subjects that were discussed in an open session with representatives of African states and international organizations. 

This is known as an "outreach" meeting and in this case, it connected the G-7 with 6 African heads of state (Ethiopia, Iraq, Liberia, Nigeria, Senegal, Tunisia) and the chiefs of the OECD, the IMF, the World Bank, the UN (Secretary General), the International Labour Organization  and the African Union Commission

Was all this useless talk? 

The answer in the next post.


Last Euro Days for Greece? A Silver Lining

Will the Cyprus bank run be repeated in Greece?  (photo source)
Grexit is fast becoming a reality and the blame game has exploded.

The Eurogroup of Ministers of finance were quick to push the Greeks out of their last-minute Saturday meeting that was supposed to wind up the bailout negotiations.

What happened? They reportedly slammed the door after a tweet announced that Prime Minister Alexis Tsipras had called for a referendum on the proposals of the "troika" - the  European Commission, the European Central Bank and the International Monetary Fund.

A tweet? I am amazed. It seems that Euro-zone Finance Ministers when they meet to discuss a serious matter like what to do with the Greek bailout are actually following Twitter on their phones. Not only that, but they immediately react by saying that if the Greeks go to a referendum, then they have nothing to discuss.

Exit the Greeks.

Perhaps finance ministers are obtuse and don't understand that at this point in the game, Grexit has stopped being a financial or economic matter, it is a political one. Tsipras's party won elections back in January on a promise to renegotiate the Greek debt and stop the austerity measures imposed by the troika. But European leaders, foremost the Germans, won't hear of it. More than that, as Ms Merkel pointed out, they've been "generous" in their offers, it's all the Greeks' fault.

A "generosity" that forces Tsipras to go back to the urns, because he knows he can't win the assent he needs from the Greek Parliament, half his party is against the troika's proposals. He has no other political choice than go back to the people. Yanis Varoufakis, the Greek Finance Minister, was crystal clear in his statement to the Eurogroup, telling them it both made sense and was democratic:
"Colleagues, the referendum solution is optimal for all, given the constraints we face.
  • If our government were to accept the institutions’ offer today, promising to push it through Parliament tomorrow, we would be defeated in Parliament with the result of a new election being called within a very long month – then, the delay, the uncertainty and the prospects of a successful resolution would be much, much diminished.
  • But even if we managed to pass the institutions’ proposal through Parliament, we would be facing a major problem of ownership and implementation. Put simply, just as in the past the governments that pushed through policies dictated by the institutions could not carry the people with them, we too would fail to do so."
And this is what the European leaders don't seem to understand. The Eurogroup took the unusual position that if there's a referendum in Greece about the troika proposals, then all proposals are off the table, implying that there was no need for a referendum.  According to the New York Times (here), Greece's fate is now in the hands of the European Central Bank. The ECB is currently keeping the Greek banking system on life support with ELA emergency funds, but the Chairman of the Bundesbank (yes, always Germany!) wants the ECB to turn off the spigot as soon as this coming Tuesday - when Greece defaults on its payment to the IMF.

In short, the Germans are determined to squash Greece.

And, as usual, the poor will pay. The bank run has been on for days now, and you can rest assured that the rich have already transferred their bank accounts out of Greece.

A monetary union implies collaboration, the strong should help the weak. That's the way it's done in America for the US dollar. Go tell the Germans. In fact, according to a recent poll, a majority of them (51%) want Greece out of the Euro and fully 70% rejected further concessions by EU partners to Greece.

The mainstream media is exceptionally meek in its reporting and quick to assign blame to Greece (for example, here). Only the Economist has done a fair job of analyzing the situation objectively, for example, "Greeks caught between Scylla and Charybdis" in Buttonwood's notebook, making the point that Tsipras played too close to the Charybdis whirlpool with his referendum and could sink. As a Greek Reporter article pointed out, Greece and Europe are both facing "unchartered waters", there can be "no winners in the Grexit game" (see here).

Greece is not Iceland, Greece is not Argentina, and the Euro is not the dollar. There are really no pointers as to what might happen next, even if contagion to the rest of debt-laden Southern Europe is (perhaps) unlikely now that the ECB can (supposedly) resort to QE (Quantitative Easing).

The Greek referendum on the Euro, scheduled for 5 July, is meant to answer the question whether Greeks can accept more creditor-imposed austerity as the price of staying in the euro, yes or no.
“Greek people are hereby asked to decide whether they accept a draft agreement document submitted by the European Commission, the European Central Bank and the International Monetary Fund, at the Eurogroup meeting held on June 25. - See more at: http://greece.greekreporter.com/2015/06/28/greece-referendum-polls-greeks-favor-agreement-yes/#sthash.jTtnPEzW.dpuf

As I write this post, the IMF has come forward with its own proposal, reported here in the UK Guardian's live stream, it came in at 16:33 on Sunday June 28.  Fascinating position, worth a close read, here it is, reproduced for you exactly as I read it:

Lagarde: IMF stands ready to help

International Monetary Fund (IMF) chief Christine Lagarde arrives for a Eurogroup meeting at the EU headquarters in Brussels on June 27, 2015. AFP PHOTO/ JOHN THYSJOHN THYS/AFP/Getty Images
Photograph: John Thys/AFP/Getty Images
JUST IN: A statement from Christine Lagarde, managing director of the International Monetary Fund, just landed in our inboxes.
Lagarde is reiterating that the IMF believes Greece’s debt sustainability needs to be addressed -- code for saying that the eurozone must put more money up. And the Fund is still prepared to work with both sides.
Lagarde says:
“I have briefed the IMF Executive Board on the inconclusive outcome of recent discussions on Greece in Brussels. I shared my disappointment and underscored our commitment to continue to engage with the Greek authorities.
“The coming days will clearly be important. I welcome the statements of the Eurogroup and the European Central Bank to make full use of all available instruments to preserve the integrity and stability of the euro area. These statements underscore that the euro area today is in a strong position to respond to developments in a timely and effective manner, as needed.
“The IMF also will continue to carefully monitor developments in Greece and other countries in the vicinity and stands ready to provide assistance as needed.
“I continue to believe that a balanced approach is required to help restore economic stability and growth in Greece, with appropriate structural and fiscal reforms supported by appropriate financing and debt sustainability measures. The IMF is prepared to continue to pursue that approach with the Greek authorities and our European partners.”

The key sentence is this one: "a balanced approach is required to help restore economic stability and growth in Greece, with appropriate structural and fiscal reforms supported by appropriate financing and debt sustainability measures." The Guardian says that this means the Euro-zone "must put more money up."

Of course that's what it means! Can anyone seriously think that the situation in Greece can be fixed without putting more money up?? It would be more important to focus on what the IMF is really saying: that reforms should be carried out, yes, but supported by appropriate financing measures that will ultimately result in a sustainable debt, i.e. a debt level that the Greek economy can live with.

It's the only reasonable, rational solution. And I am happy to see that the IMF is standing by it, ready to pursue that approach with all stakeholders.

This is yet another example of the excellence of our international institutions, something we tend to forget all too often, as we see the United Nations failing here and there, and being snubbed and ignored (as is the case for the ICC, the International Criminal Court). Remember, the IMF, along with the World Bank, were created in the same wave of generosity and vision that saw the birth of the United Nations.

Where is that generosity and vision now? Certainly not in the Euro-group!

So what happens next? My guess is that the IMF will extend the deadline on the payments Greece must make to it. Since the referendum is next Sunday 5 July, expect at least a 2-week reprival. But of course I could be wrong...And of course, all the usual things are likely to happen: bank holidays and capital controls.

And the outcome of the referendum? According to recent Greek polls, the Greeks are likely to vote yes. But the betting firm Ladbrokes has slashed the odds of Greece voting yes to just 1/3, in contrast to the 2/1 is was offering when it opened the books. So expect the Greeks to vote no!

That the Greeks are fed up with this charade should come as a surprise to no one. But the rest of the world should beware: the Greek economy may amount to only 2% of the European Union, but it could very well be a case of the tail wagging the dog. One thing it will do for sure, is to nip in the bud Europe's fragile recovery.

And when that happens, we can thank Ms. Merkel and her buddies for that. 

Update: Sunday night (June 28), Tsipras announced in a speech on TV that banks would be closed the whole week prior to the referendum and that capital controls would be put in place. My guess is that he is trying to "freeze" the financial situation and hoping to get support for the "no": that would give him a stronger hand if and when bailout negotiations resume.

With a "no" at the urns, Tsipras would be able to point out to the Troika that he is bound by his political pledge to reduce austerity. Perhaps that might help them to undestand that this was never an economic issue but a political one. But I suspect the IMF has understood that - it is just as technocratic as the other two (ECB and EU Commission) but appears to have a greater political sensitivity.

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About Chicha Dancing, Empty Streets and Women Equality

This is the continuation of the previous blog post that introduced you to Vicky, a tall and elegant American woman in her mid-thirties, a UN official on a project evaluation mission to Peru - the time is the early 1990s. 

She goes to a chicha dancing place in Puerto Maldonado, in the Amazon, accompanied by Ben Khedara, the project manager. He is a middle-aged widower of Arab origin, as his name suggests. ( to read the previous post click here). 

Here then is what happens to Khedara and Vicky as they sit down in front of two pisco drinks:  

They made an unlikely couple, thought Vicky, in a chicha dancing place lost in the jungle, far away from the tourist circuits. She knew she was the kind of woman you’d never expect to see sitting next to a mature, almost elderly man, with thick glasses and a balding head. Her Parisian chic was a stark contrast to his no-nonsense, middle-class attire of plain cotton shirt and jeans. She was uncomfortably aware that she looked like the kind of wealthy women who dressed for a chic safari in Kenya or a South Seas vacation – all of a sudden, she wished she hadn’t changed out of her working clothes, plain jeans and a cotton shirt.
She could see they were gradually drawing attention and creating a sensation with the clients of the chicha place. She knew they were such an ill-assorted couple that it wouldn't be long before one of the brash young men would ask her to dance.  One got up, and with a bouncing step and rolling shoulders, he approached her. He stared at her a long time and slowly gave her a self-assured, winning smile that promised nothing but trouble. She turned to Khadari and quickly asked him to invite her to dance before that dangerous looking macho did.
They moved on to the center of the room, Khadari leading her in a rollicking jig, and looking shamelessly happy about it. Then he unexpectedly pushed his face close to hers, and she caught the gold flash of a capped tooth and the whiff of garlic on his breath. She closed her eyes and stepped back, hitting someone behind her.
Out! She needed to get out right away. "Let’s leave, now!" she whispered in Khadari’s hairy ear.He complied instantly, much to Vicky’s relief.  He paid the two piscos and lemonade that they hadn't finished, and, taking her arm, he steered her out into the night. It was still very hot, in spite of the late hour - not a whiff of breeze, just heavy, damp clinging air, like moist cotton on the face. "Thanks," she said, "I could tell gringas aren't supposed to remain sitting in that kind of place."
They walked in silence back to the hotel through the dark, empty streets. Vicky was reassured by Khedara’s presence next to her; at moments like this, she realized that being a woman was a distinct disadvantage. You couldn’t go to a dancing place, you couldn’t walk alone in the streets of an unknown town all by yourself. Too dangerous. An insect hit her cheek, another brushed her lips. Was it a mosquito? She couldn’t tell. They were walking through swarms of undefinable insects hanging immobile in the air, like thick clouds. She was afraid of swallowing one and was careful to breathe through her nose. They had to be mosquitoes; she felt them stinging her naked ankles, in spite of the brisk pace of their walk. She increased her speed, hit a pebble and stumbled.
"Let me hold your arm," said Khadara gallantly, "the streets are treacherous, no asphalt, no sidewalk."
Much to Vicky's distaste, he firmly grabbed her elbow and steered her forward at a maddeningly slow and cautious pace. When they finally reached the hotel, he talked of having a nightcap. She tried to think of a good reason to refuse, but couldn't think of any.

This scene takes place in the 1990's - and in fact, it is inspired by events that I lived through in that period and wrote about when I returned home from my travels. 

What is interesting (to me at least) is the observation that a woman who is doing a man's job as Vicky does still suffers from limitations in what she can actually do. Going to a local dance place somewhere in a developing country, walking alone at night in the streets of an unknown town are things she cannot safely do.

Source of image here
And yet, the UN system is probably one of the most equitable and advanced in the world in the way it treats women staff: there is, by definition, no discrimination against women. Salary scales and perks like health insurance are exactly the same for men and women, there's no gender distinction, no "glass ceiling". Yet, there are certain places, certain activities that cannot be open to women.

For example, I was a project evaluation officer for 20 years, but there are countries where I was never sent to evaluate projects, like Yemen or Nigeria - a decision my Evaluation Service Chief took for my own protection - and also because, on a cultural level, women cannot "function" as effectively as men. No doubt, in the two countries I mention, a woman who comes to inspect a project and has to weigh the efficiency and effectiveness of the project's staff (men included) will find it difficult to do her job...

Culture is not yet globalized and probably never will be.