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Greek voters went to the polls yesterday and overwhelmingly rejected a European bailout deal offered two weeks ago. ‘No’ votes won the day by more than 60 percent. Greece’s government says the referendum gives it a mandate to pursue more favorable terms from European creditors. But banks in Greece remain closed and ATM withdrawals are still restricted. German Chancellor Angela Merkel is traveling to Paris for talks with French President François Hollande; European leaders have also called an emergency summit. We look at the historic referendum in Greece and what it could mean for the future of the Eurozone.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Yesterday, in Greece, more than 60 percent of voters rejected a Eurozone bailout package that would've imposed greater austerity measures and this morning, the country's outspoken finance minister resigned. Joining me to talk about the Greek referendum results, what they could mean for the U.S. and other international economies, Scheherazade Rehman of George Washington University, Stephan Richter of the Globalist, Nicholas Karambelas of The American Hellenic Institute and joining us by phone from Athens, Greece, Stathis Kalyvas of Yale University.
MS. DIANE REHMI'm sure many of you will want to weigh in. Give us a call at 800-433-8850. Send an email to firstname.lastname@example.org. Follow us on Facebook or send us a tweet. Thank you all for being with us.
MR. NICHOLAS KARAMBELASGood to be with you.
MR. STEPHAN RICHTERGlad to be here.
MS. SCHEHERAZADE REHMANThank you.
REHMStephan Richter, remind us what was on the ballot and why do you think they came out and voted no in such large numbers.
RICHTERWell, this is the first question I can't answer. The second part, I can. I think it is fair to say that other than there was a no word and a yes word on the referendum ballot, nobody really understood what they voted about. I think it's the fairest to say that the no voters hoped for a better future for Greece and so did the yes voters. The no voters believe, as their prime minister Alexis Tsipras, told them, that if they voted no, they would get a better deal from Europe.
RICHTERThe yes voters, probably more realistic, said we've got to bite the bullet. It's going to be tough. Our country needs to reform itself. The Europeans are not going to give us a better deal and as in any emergency situation, such as Greece is in, the government did get the upper hand by more than 60 percent, which is roughly the, you know, let's call it the non-centrist right camps or the left plus -- extreme left had 60 percent of the vote and that puts a big problem in front of everybody, including the Europeans to see what the future will bring and everything is imminent and needs to happen today and tomorrow and we'll see a lot of meetings in very short order in Europe.
REHMStathis Kalyvas, do you agree that there was some confusion about what exactly the ballot meant?
MR. STATHIS KALYVASAbsolutely. And, in fact, the big campaign if they call it -- if I can call it like that because you cannot really have a campaign in just one week -- was about how to understand the question that was posed. So the government, on the one side, argued that by voting no, Greek voters would express their displeasure with austerity measures and at the same time, they wouldn't be facing any risk because, in fact, the only alternative was a better deal so a lot of people got -- went for this message, which is actually very attractive if you think about it.
MR. STATHIS KALYVASAnd on the other hand, the yes campaign argued that, like, the European Union and the Eurozone member states and the creditors in general argued this is really a referendum of the greatest position in or outside the Eurozone and therefore, Greece's position in Europe is very important and this is really about the euro. And they voted accordingly. The ballot itself was extremely confusing. There were lots of funny interpretations, including a version that represented as a mathematical formula.
MR. STATHIS KALYVASIt included appendices in the reference to technical financial reports in English so it was quite a surreal experience to be participating in this referendum, I have to say.
REHMAnd tell us about the resignation of Greece's finance minister today. What does that signal?
KALYVASIt's a very interesting development because he had mentioned in the past few days that he would resign if the yes vote won. And actually, he resigned even though the no vote won, which is very interesting. But that's pretty much what he has been doing all along, arguing on both sides of the science, confusing everyone and eventually doing things that are not really easy to understood. My interpretation of what he did was that he didn't resign, but was basically fired.
KALYVASAnd he was fired by the prime minister, Alexis Tsipras, because he had basically burned too many bridges. It was impossible to get a negotiation going between him, on the one hand, and Greece's creditors, on the other hand, because there was so much bad blood between them and mistrust. And I think what Tsipras is doing is sending a message to Europe, perhaps, that he's willing now to be serious about these discussions.
KALYVASThe question, of course, is why do it now, why not do it before and there are many interpretations about that, but then we can get into very different understandings of Greek politics.
REHMAnd what is the mood like there in Athens today?
KALYVASI think the best one-word description is hangover. You can think of the referendum as a very big party. Everyone was mobilizing. There were mass rallies. People were out. And I think, Diane, a lot of people were extremely concerned. There was a tremendous amount of uncertainty and this is all taking place in the backdrop in which people cannot really access their bank accounts. I mean, it's traumatic. You have to stand in line in front of ATMs to get at most 50 or 60 euros a day, which is very little.
KALYVASThe economic activity has come to a standstill because a lot of import and export companies in Greece cannot operate anymore. They cannot bring in imports because don't have credit. A lot of people, Greek people who are traveling abroad cannot use their Greek credit cards so they couldn't come back home. There's a lot of concern about tourists and how that is going to play. This is the height of the tourist season and tourism is the one thing that brings a lot of money in Greece's coffers.
KALYVASAnd there's a -- every activity has stopped. People have stopped paying taxes. Nobody is doing anything.
REHMSo to you, Scheherazade Rehman, how important are the results of this referendum. Does the Tsipras government have a new mandate?
REHMANI think the Tsipras government has done it again. They have yet again offered a silver bullet, promising voters something they cannot deliver on. They were promising a fresh start to a new deal. This is a domestic political stunt at best or on the extreme, political naivete. He has made the issue and the deal much more difficult at this present time. The IMF was not willing to negotiate prior to this referendum because there was political brigmanship and now he has made it impossible for the IMF to negotiate because the IMF does not reverse its lending policies just because a country holds a national referendum.
REHMNicholas Karambelas, do you agree and were you surprised at the result of the referendum?
KARAMBELASI was surprised at the amount of no, the percentage, but you have to remember I believe it was totally, almost exclusively, an emotional vote by the Greek people. You have to understand the significance of the word "oxi." That means no in proper language, but it also has a national significance of defiance, of national dignity. It stems from Mussolini was about to invade Greece in World War II and asked -- demanded that the Greeks surrender.
KARAMBELASAnd the president of Greece, at that time, said, "oxi," no. And so -- and it's a national holiday in October called Oxi Day. So it has a significance and very strong political significance. On the other question, I think what has happened, you know, in the negotiation is that each side now has made a point. Each side, the banks are closed. The Europeans can show what can happen if you don't negotiate properly. The Greeks have shown their national dignity and defiance.
KARAMBELASAnd what I hope will happen is, okay, we've both made a point. Now, let's sit down and do serious negotiating.
REHMNow, Stephan Richter, is that what may happen? May the IMF change its stance? Might the Greeks change their stance?
RICHTERFor the sake of the Greek people, and by that, I mean, not the politicians, not the rich, not the ones in the media, not the tax-evaders, not the ones with the big swimming pools in Athens, one would hope so, the pensioners and so on. In reality, in American terms, it's probably best to say, what happens to a football game where the coach of one side let the clock run out. Can he restart it?
RICHTERI don't think so. I think Scheherazade was exactly right when she said it's going to be extremely difficult. The Greek's problem has always been one of implementation. Let's step back from all this current trouble. Greece, for hundreds of years, has had a problem to balance its books, to raise taxes. Yes, it was due to Ottoman rule and the Turks, at the time, probably didn't help a Greek polity emerge. But as we know from the American example, the hardest thing about becoming a democracy is to raise the funds so that we can be self-financing for the desires, for the public needs, the public wants.
RICHTERAnd that's the problem independent of all the faults of the Eurozone and whatever else everybody did, I think lots of people learned a lot. We're all the wiser for it. What Mr. Tsipras badly miscalculated on is that with 2 percent of Eurozone GDP, Greece was not much in order to figure out what the future of the Eurozone will be about. People who say Europeans have spent far too much time talking about Greece, a small country, are fundamentally wrong.
RICHTERWhat we're discussing, unfortunately, on the base of the case of Greece is the future of the entire Eurozone and that's something damn important.
REHMStephan Richter, publisher and editor-in-chief of The Globalist. We'll take a short break here. I see we have many callers and emails. I look forward to speaking with you. Stay with us.
REHMWelcome back. We're talking about the Greek populace saying "No" to a vote that was taken yesterday. The final results, 61.3 percent said no, and 38.7 percent who voted yes. The ballot said, "Should the outline of the agreement submitted by the European Commission, the European Central Bank and the International Monetary Fund at the Eurogroup of 25/6/15 and which is made up of two parts that constitute their unified proposal be accepted." How confusing is that?
KARAMBELASIt's quite confusing. And it's quite difficult to understand. And I think everyone kind of made up their own perception of what the ballot is.
REHMOf what it meant.
REHMRemember, the ancient Greeks said, "It isn't reality that divides us, it's our perception of reality." And I think that's what happened here.
REHMHere's a question for you, Stephan Richter, from Zane in Ohio, who says, "It's my understanding, the Greek economy is less than 2 percent of the EU economic system, which means it must be an infinitesimal percentage of the overall world economy. Why, then, is the crisis in Greece causing such consternation worldwide, with dire implications for an international financial meltdown?"
RICHTERThat's a very good question.
REHMIt certainly is.
RICHTERAnd in our culture here, we know about the power of the precedent. Yes, the caller is -- the listener is absolutely correct. It is only 2 percent and it seems eminently fixable. However, there are a whole host of countries that face similar problems: Spain, Italy and so on. And it has been -- it's been very interesting. Listen very carefully to any announcement made by the French President, the French Prime Minister or the French Economics Minister and the French Finance Minister. Already, for the last week and a half, they have been very outspoken, saying, "Europe must grant Greece more solidarity."
RICHTERNow, for Americans, very hard to understand what solidarity means. In simple terms, in my view, in this era of globalization, it means that we want to stay off the train of having adjustments -- economic adjustments forced on us by the global economy and we want others to help us preserve our way of life. Now that's an entirely understandable position. It is the right of any sovereign nation to believe that. What is not the right of any sovereign nation is then to have all other democracies that quote, unquote, "subjugate" themselves to those standards of making a better living in a more competitive world pay for that way. And that's the problem.
RICHTERThe Germans, for example -- which are key players in this -- are very concerned that what the French are doing by bringing gifts to the Greeks about solidarity is what they are saying is, we have tremendous difficulty, even in France, and have much higher level of economic development, has very big problems to adjust to these new global realities. In terms of a political domestic economy, it is not equal to the problems of Greece, but it is structurally similar. And the Germans are very concerned by giving a little finger to Greece, that the French or others would rip off their arms. And that's not just the Germans, it's all Northern Europeans, the Finns and so on. And that's why this is a much more vexing issue than just talking about little quote, unquote, "Greece."
REHMANYeah, you know, Greece is 2 percent of the European GDP. But one has to remember that in 2010, we were coming off the 2008 financial crisis. And that was a crisis of confidence, of confidence and fear. That is no longer true. In 2015, there will be no global meltdown because Greece is in trouble. The markets fully understand this is a Greek problem and not a Eurozone problem. So I think, this time, it will be different.
REHMStathis Kalyvas, do you believe that the IMF, Angela Merkel and the others who are controlling what happens here, are going to soften their position in regard to the Greek economy?
KALYVASWell, the way you put it, I think, is very telling. Because part of the problem is that you don't have one side negotiating with Greece. You have plenty of actors. You have the IMF. You have the ECB. You have the countries of the Eurozone. Within the Eurozone, you have the European Commission, which is an independent, kind of super-national entity. And then you have the other 18 Eurozone member states. And within that, you have 18 parliaments that have to approve any bailout package. You have 18 oppositions. You have everything. So how do you bring everyone on the same line. It's extremely complicated.
KALYVASAnd part of the reason that reaching a deal under such short deadlines is very difficult, is precisely the nature of the process. I'm often reminded of this movie that you probably know, "Dr. Strangelove," in which you have a sort of infernal machine that has been built that is launched. And then it's very, very difficult to stop it. And here we have a very difficult deadline on July 20, which is Greece's installment. Greece needs to pay back the ECB, the European Central Bank. If that doesn't happen, then the European Central Bank can no longer assume that Greek banks are solvent. They have to basically shut them down, which would be the end of the Greek economy as we know it.
KALYVASSo everything has to happen very quickly. All these actors have to align with each other. And that is taking place in a context in which there is tremendous mistrust against the Greek Prime Minister, because he broke off those negotiations that have lasted for five months and then called this referendum. Not only did he call the referendum but also he campaigned in a very aggressive way against his lenders and partners, calling them blackmailers, terrorists and using this kind of terminology. So how...
REHMBut has he strengthened his position at all with the "no" vote?
KALYVASWell, he has strengthened his political position significantly because he has managed to activate this, you know, element of defiance that was mentioned before. At the same time, he has also weakened himself because of a 60 percent vote in favor of an intransigent position, he's basically with his back against the wall. And keep in mind that the reason -- one of the reasons why he got that very big vote is because he told voters: Number one, there's no risk. Number two, banks are going to reopen on Tuesday, no way. Number three, we are going to have a deal in 48 hours, no way. So he basically lied all the way to the ballot box. And, you know, people are not going to be happy when they find out that, you know, they bought into that argument.
REHMANLet's be frank. The Greek banks are insolvent today. The ECB knows that. The fact of the matter is the ECB has to decide whether it's going to take the risk of financing them on an emergency basis for the next week or so. Bottom line, we have had all this fiasco over a missed payment of $1.6 billion to the IMF last week. And what's coming up, what was mentioned just now on June 20 (sic) is a $3.5 billion payment to the ECB itself. So therefore, the ECB really is at the heart of this. I don't think Mario Draghi will really make a decision on his own. He will see the mood of the EU leaders and then take action.
RICHTERI think Scheherazade is exactly right. In American football language -- this might seem to make this more comprehensible -- what the ECB will do is punt. It is not the political master of Europe. It will just stall for a little bit. But let's look at how this plays out. There are no more euros, basically, in the Greek banking system. Mr. Tsipras can't create that rabbit out of a hat. There are lots of people in the United States and elsewhere who have long argued in favor of returning to the drachma. Possibly a good idea, a very painful path, but Greece doesn't have anything but painful path ahead of itself.
RICHTERSo we're going to see a situation where the likes of Paul Krugman and so on -- who have often argued this case -- will probably see this test case in the reality because it is very unlikely that the Europeans will now cut the Greeks another bridge beyond humanitarian crisis. It's often said that there is dangers about left-wing populists in Europe. It was most significant that the SPD, German Social Democrat, head of the European Parliament and the German Vice Chancellor, the head of the SPD Party, both left-of-center people, have said that the Greeks now have gone one bridge too far and Mr. Tsipras has ruined it for them.
RICHTERAnd that is, I think, something that will be very hard. These are all the same people that, when Mr. Tsipras -- young Mr. Tsipras -- came into power, embraced him. Angela Merkel has a kind of liking to young people. It was known with the German National Soccer Team. She doesn't have children. You know, she liked the soccer team people. She liked Tsipras. She took him under his wing. She tried to shepherd his way into it. But there's one simple lesson in German and European politics. If you double-cross Angela Merkel one time too often, you do so at the peril of your own existence. And I think that's what Mr. Tsipras will learn very shortly.
REHMI want to quote here what Paul Krugman has written just today. He says, "We have just witnessed Greece stand up to a truly vile campaign of bullying and intimidation and attempt to scare the Greek public not just into accepting creditor demands but into getting rid of their government. It was a shameful moment in modern European history and would have set a truly ugly precedent if it had succeeded. How do you react to that?
KARAMBELASWell, Diane, I see it a little differently here. I, you know, I read an article over the weekend and it -- paraphrasing it -- it seemed to me, captures some of what's going on. I think the Northern Europeans are Protestant Calvinists and Greece has to be punished for its profligacy, its sloth. The Greek Orthodox see it differently. You go to church, you get your mind right for the good, God forgives you and you go on with a clean slate. And I think, when you look at the debt-relief aspect of it, there's an angle there.
REHMAll right. And here's an email from Dan in Washington. What would it mean to exit the Eurozone? Would Greeks be prohibited from using euros to buy and sell goods and services? Would their bank accounts suddenly be redesignated in some other currency? Stathis.
KALYVASYes. It's a complicated process and it's really uncharted territory, so we don't really have a sense of the actual steps. But basically the logic of the process is that you'd probably start by printing IOUs because you've run out of euros. And then eventually, those IOUs are replaced by drachmas. The drachmas are going to be denominated at a high value but very quickly they are going to collapse because they're not going to be -- it's not going to be a strong currency. Which means everyone is going to get poorer immediately. Probably the estimate is around 50 percent and even perhaps more.
KALYVASOn top of it -- and that's very important because people very often don't pay attention -- Greece is an import country. It imports food. It imports energy. It imports medication. Even tourism, in order to work, needs energy. So it's going to face tremendous shortages...
KALYVAS...because suddenly it's going to have a very weak currency. And that is going to cause many, many problems.
REHMAnd what about the tourists who are there right now?
REHMANWell, it becomes a little tricky when you can only extract 60 euro a day, which soon will probably end up being -- later this week, if no deal is done -- 20 euro a day from your ATM machine. I think there is two issues here and we have to separate them. There is a short-term absolute emergency on the ground that has to be dealt with. And I think, eventually, this government will either wrap its head around it, has to make a deal on the terms of the EU and the IMF. But then there is a longer-term issue that has to be dealt with and that is, how do you really deal with the Greek situation? It needs a third bailout and we know that.
REHMAnd you're listening to "The Diane Rehm Show." Explain a little further what you mean by dealing with it in the short term and what the prospects are for dealing with it in the long term.
REHMANSure. Basically, look, we all know that in 2010, the European Central Bank and the EU made a mistake. They did gross failure and mismanagement of crisis, which has led us to the situation today. The fact of the matter and the reality is, in the short term, the Greeks have to accept the deal -- whatever deal is put in front of them. It buys them a little bit of time. At that point, they will have a sit-down and there will be a third bailout. There has to be. Otherwise, there is no way this economy can move past even the next month.
REHMDo you agree?
RICHTERI wish it were so. I think Mr. Tsipras literally burned his bridges. The French will make Scheherazade's argument. The Germans will make the opposite argument. Because they are right in saying this: It is all about implementation. It is about simple things like having clean administrative structures, not filling your employment ranks with political cronies in media and everywhere in the government industries. You know, the conservatives go in, bring conservative cronies and the other way. And they all stay in there and nobody can get -- so it's, you know, that's the big problem. And that's the unfortunate thing.
RICHTERYoung Mr. Tsipras, in January, could have done this. He could have said, "We need to go after the rich. We need to do -- go against the tax evaders." The German Finance Minister and so on would have been all for that. They would have helped them along the way. But at this point, he's really shown that he cannot be trusted. There's one thing he can pull out of his hat. There's a chance -- we noticed that all the party heads -- other party heads in Greece resigned. Maybe, just maybe, he can somehow come up with some not technocratic, but unity government. That's the one shot he has. Because then he can say to the Germans, "Look, the entire country is behind me. We need to do this." And if he pulls off that, then there's a shot. Absent that, I see no chance.
REHMStathis, how much chance is there of what Stephan has outlined?
KALYVASI agree with him. I think that's probably the best off. And I would also add, the unity government should be headed by someone else than Tsipras. Because I don't think...
KALYVAS...he would be very well seen. At the same time, this is very, very difficult to achieve. And also, we have to keep in mind, it's not clear what Tsipras' preferences are. Some people have argued that he may not want to deal. He may just want to take the country to the drachma, believing that he would have all the creditors off his back and perhaps he can start a socialist revolution in Greece. Who knows?
REHMAnd considering the vote he got, why would he step down?
REHMANThis government has a limited shelf life, period. It is out.
RICHTERAnd the additional point is, for Mr. Tsipras' dreams, going for the Bolivar (sp?) Republic, as some have called it, he needs to realize that, unlike Venezuela, which is teetering on the brink, he has no oil whatsoever. So I don't know where he's going to get what drachmas other than printing. And that just extends his current problems.
REHMStephan Richter. He's publisher and editor-in-chief of The Globalist. We'll take a short break here. When we come back, time to open the phones. I look forward to speaking with you.
REHMAnd it's time to open the phones as we talk about the financial ongoing crisis in Greece. Let's first go to (word?) Alabama. Joseph, you're on the air.
JOSEPHThank you, Diane. It's good to hear from ya'll. My perspective on the situation is that the Greek people want to achieve more, but how can they do it with the limited resources that have been placed on them with the current situation they're in? I think that they wanted --there's something similar to what Iceland did, where they issued their own currency, get out of the European Union and allow the people to have more privileges. And it would allow them to re-stabilize. Even though it may be rough in the short term.
JOSEPHIt looks like they want to go down a better path for their nation, so they can benefit more and they can have more privileges without having it to where there's a situation where they could have an economic oppression from the financial situation that's taking place. They do have a small economy, relative to the rest of the European Union, and that allows the other European Union to sometimes get more benefit from the way it's set up now than it would be if they would issue their own currency. Re-stabilize their economy and make it a better living standard for all their people.
REHMAll right. Scheherazade, you're shaking your head no.
REHMANThere is no comparison here. Even using the Euro right now, estimates are that for the two year bond yield for Greece, it's 50 percent for the interest rate. And for the 10 year, it's close to 20 percent. If they have their own currency, those numbers are going to double, if not triple.
REHMAll right, to Santiago in Kalamazoo, Michigan. You're on the air.
SANTIAGOGood morning. Before I ask my questions, I'd like to clarify something that some of the panelists who sound like they're channeling Angela Merkel said, it's not true that tourists can only extract 60 Euros. That's only for people who have Greek credit cards. If you're a tourist or an international traveler, you can extract from your bank account however much money you want and I did that while I was there. In Athens, from where I returned just 24 hours ago.
REHMAll right. I appreciate that correction.
SANTIAGOSecond, second comment. Prior to asking my two questions. I would like your panelists, again, if there was somebody there who was not channeling Angela Merkel, those would be the people that I'd like to hear from. How do you reconcile economic growth, austerity measures and a global economy that's based on lending and on investment in stock markets, not on producing goods? Now, here are my two questions, then. What is the difference between what the European Union is doing to Greece and what the United States did to Chile between 1970 and 1973?
SANTIAGOWhat it did to Nicaragua between 1979 and 1990? And what it's currently doing to Venezuela?
REHMAll right, Stathis, do you want to comment?
KALYVASWell, I'm not a specialist in Latin American political economies, so I cannot really address all these comparisons. I certainly would say I'm not, at all, channeling Angela Merkel. In terms of the tourist situation, it is correct, that tourists could actually get much, you know, all the money they wanted at the beginning. But keep in mind two things. First, a lot of ATM's were running out of cash. So you would go to the cash machine and there would be no cash at all, no matter what kind of card you have.
KALYVASOn top of it, the cash is running out for everyone. As a result, it's likely that we're going to have more restrictions coming in very, very quickly. So, I wish the situation was much better. On top of it, even though you can use credit cards, especially foreign credit cards to do your business, which is good, a lot of businesses are not accepting credit cards anymore, because they cannot use the money out of their bank accounts. So, that is creating a chain of different problems. So, it's not as simple as the caller put it.
REHMAll right. And here's a tweet from James, who says Greece is the canary in the mine. The problem is the Euro system, which has no means to cope with crises, which country will be next? Scheherazade?
REHMANIt's, they, in 2010, they did not have a mechanism. In 2015, they do have a mechanism, so the Eurozone is okay, because the European Central bank has a mechanism for emergency lending. But it is a canary. But it's a canary for a different sort of problem in Europe. The European high lifestyle, the social standards, which are exalted for the whole world to sort of aspire towards...
REHMANRetirement benefits, job security, this is a very expensive lifestyle.
REHMLow taxation for many?
REHMANWell, high taxation, high taxation, but, you know, one month holidays, very good social programs in terms of family healthcare and so forth. And pension healthcare. It's an expensive system to maintain and the Europeans are finding it more and more difficult, all the way from large countries like France all the way down to Greece, to maintain this kind of lifestyle. So, the European lifestyle itself is at stake. And you couple this with growing income inequality in the West, this is really a canary that is screaming.
REHMAnd here's a tweet from Krishnan. How much austerity should the Greeks take? Five years of austerity have not brought any relief, so why keep doing the same, Nicholas?
KARAMBELASI think one element that's missing in these negotiations is a mediator. And it could be, maybe it's the United States, I don't know. But I've been in, as a lawyer, I've been in a lot of negotiations. And you reach a point where the sides just can't communicate anymore, and I think that's happening here. You get a mediator to whom each side can vent. And then, bring the proposals back and forth. So, I think that would serve a very important purpose here and would answer that question. How much austerity can they take?
REHMNow, do you see someone waiting in the wings who would be more effective than Tsipras to enter and continue this negotiation? Stephan.
RICHTERLet's assume the emergence of such a god-like figure. I think Stathis was exactly right when he told us before that what is playing out right now is a hyper complex process of negotiations and he went through the lists with the ECB, the European Commission, the Finance Minister, the Eurozone's Presidents and some of the Parliaments and all of that. That means there is a very thin path to get to any probable, or possible solution. Let's keep one thing aside, though. At the side.
RICHTERWhen we talk about austerity and we talk about debt, the debt already has been restructured so that Greece currently pays less in terms of interest than the Germans pay, which have notoriously low rates of interest on their bonds. Frankly, the Europeans, the quote end quote northern Europeans are not expecting much of anything, if anything, back from the Greek debt. As Scheherazade has pointed out, it was mistakes all over the field. What they are insisting on is to end the kind of give the Greeks an up-front concession and hope for better behavior.
RICHTERThat was what was done when the Euro was introduced. Let's remember, Greece was let into the Eurozone because the countries were chaffing and a high differential interest rate. If a Greek businessman wanted to take out a loan, he had to pay 15 percent and a German had to pay three percent. The idea of letting the Greeks in was to say, hey, we take this leap of faith. You will invest this money, not in consumption, not in families and government jobs and the holes in your budget.
RICHTERBut you will invest in the future of your very ingenuous people, my neighbor here to the left is a key part of all the entrepreneurial Greeks, which unfortunately, too many of them live abroad. And there is a pattern and reason for that. But the Europeans have no interest, in terms of guilt. Angela Merkel herself is a Protestant, yes, but she has been the key bridge builder. She was the one who tried to get Tsipras into the tent. She will go to almost, and stress almost, any length, to build somebody a bridge. But once he burns it, there's no way back.
REHMAll right, to Joe in Greensboro, North Carolina. You're on the air.
JOEHi Diane. Nice to talk to you. Me and my wife are, Roseanne, are big fans.
JOEFirst, I'd like to say condolences to the Greek people for having to self run, apparently a corrupt, inept government. But my question is to your panel. With Italy, Portugal and Ireland, according to the press, not being too far behind Greece and their financial distress, and with Francois Hollande seemingly siding with Tsipras and the Greek people on easing austerity and basically letting them get away with robbing the bank, what incentive does Germany have to stay in the Euro? Why wouldn't they just fold up their tent and say, you know what, we've had enough of all this nonsense.
JOEWe're done. We're going back to the Deutch Mark and good luck to you all, all you folks on taking care of each other. You know, that's, I think you understand what I'm saying.
REHMSure. Go ahead, Stephan.
RICHTERSo, here comes a surprise. Because the Germans do believe in solidarity. Countries make mistakes. By golly, Germany made plenty of mistakes in the 20th century, far beyond Adolph Hitler. You know, we did a mess of our economy, partially due to wars and so on. So, we have understanding of, we Germans, I do have a German passport. Though I've lived here for 35 years and very happily. So, and out of conviction. We believe that it is important to help other nations that want to help themselves.
RICHTERThat is the question about Greece. The Greeks want to, as we say in the English, want to eat their cake and have it too. In Italy, for example, it's very different. Because young Matteo Renzi is really trying very hard to shift what has been a rather decrepit domestic political economy. In Spain, they have changed the labor laws. This will take 10, 20 years, but the Germans will be with those, and will stand ready with any help that they can provide, including financial, to countries that want to help themselves. That's the European deal.
RICHTERThe European deal is not keep us in the way we believe we are entitled to and finance us while we don't want to change. That's the problem for Greece. That may be the problem for France at a completely different level. But other countries are actually moving and trying very hard.
REHMAll right, and here's an email for you, Stathis Kalyvas. From Bob in Michigan, who says, Greece is in depression, not recession. Its unemployment rate is about the same as that in the US during the Great Depression in the 1930s. We got out of the Depression through massive government spending, first preparing for war and then during the war. Imposing further austerity on Greece calls to mind Einstein's definition of insanity. Doing the same thing over and over again and expecting different results.
KALYVASI think there is some sense in that. But I think a mistake that a lot of commentators make, and especially Paul Krugman, I think, among them, is to see what is going on in Greece as a sort of complication between Kensian and un-Kensian attempts to improve the situation. It is true that imposing austerity can be counterproductive under some circumstances. In Greece's case, I think the problem is on the mental institution. Greece needs to reform its political and economic institutions. If it doesn't reform its institutions, it's basically a bottomless pit.
KALYVASNo matter how much money you throw in, it's going to be lost, because the country doesn't have the ability to turn that money into productive capacity. So, yes, you need a different kind of package. But that package that is going to have a developmental component, a fiscally expansiary component, has to go together with a very strong set of structural reforms. And to do that, you need a government that's committed to it. And we don't have that yet.
REHMAnd you're listening to The Diane Rehm Show. So, Stathis, from your point of view, what is next for the Tsipras government? How long do you think they can remain in power?
KALYVASWell, they are going to face a set of very, very big challenges. The -- if these negotiations, if this last round doesn't pan out, if no lifeline emerges and they have to face the prospect of an explosion by moving to the drachma I find it very difficult to believe that they're going to manage to survive this explosion. When I compare the situation in Greece to that of Argentina in 2001, where we had a similar, much easier situation, a default on a much smaller set of loans, what we had was something like five or six different presidents in a course of a few months before the situation stabilized. So, everything will be at play.
KALYVASIt's impossible to anticipate what is going to emerge, but I frankly find it very difficult to believe that the government that's going to take the country out of the Euro towards the drachma under chaotic situation of that sort is going to be able to survive in power.
REHMANLimited shelf life.
REHMFor the government itself?
REHMANAbsolutely. They are a fringe government, and yes, democratically elected, but the danger of fringe governments is they have politicized a process that did not need to be politicized.
REHMStephan, how flexible are the Eurozone ministers on the Greek debt at this point?
RICHTERThey've already been extremely flexible. As I said, the Greeks basically don't have to pay anything back. They have expressed their willingness to extend when debt becomes due further out into the future. What they're not willing to do is to give the Greeks that in writing right now. Because then the Greeks will bank that and compared to what Stathis just said, will not make any of the changes. Let us also remember, this isn't just about Tsipras and the Tsipras government. The previous caller who talked about depression in Greece, a very simple math experiment.
RICHTERThis was not under Tsipras, this was under (unintelligible) a democratic and conservative governments. Over the past decade, Greeks, in the first decade of the 21st century, the Greeks basically raised their salaries by 25 percent, by 33 percent roughly. Why? Because they said, we're part of Europe, we want to have the European lifestyle. This is what a lot of those loans went for to balance the books on that. Now, if you take an artificial 33 percent increase in salaries that was not due to productivity, more tourism sales or Greek internet entrepreneurs.
RICHTERYou very simply, by Math, if you have to take that salary increase that was totally artificial out, you end up with 25 percent decrease in the standard of living. This is what we have. There's nothing, you know, in terms of depression, this is a math experiment that unfortunately Greek political leaderships, under all political stripes, in conjunction with the Greek people, put upon themselves. It's very tragic, but that's what the numbers bear.
REHMNicholas Karambelas, what do you see happening next?
KARAMBELASI think you have to be aware that Syriza is an opposition party. It's not a governing party. And it finds itself, after the election, as a governing party. And it has not, and will never make, may not make the compromises that a government in power must make with its ideology. So, I think that's a conflict that will eventually cause this government to fall.
REHMAnd how do you see what happens next, Scheherazade?
REHMANIn the very short term, no wiggle room for this government. It has to compromise. Long term, need a better plan for the international community and the EU and this government is out.
REHMScheherazade Rehman, Stephan Richter, and Nicholas Karambelis. And joining us from Athens, Stathis Kalyvas. Thank you all. And thanks for listening. I'm Diane Rehm.
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