Brookings: Experts - Daniel V. Speckhard

Mass Protests in Greece Against Merkel

Daniel V. Speckhard — Tue, 09 Oct 2012 00:00:00 -0400

Editor's Note: On October 9, 2012, Daniel Speckhard was interviewed by Dan Matheson of Canada's CTV News, on German Chancellor Angela Merkel’s visit to Greece and the ensuing protests against European Union policies in Athens. Watch the video on ctvnews.ca.

Dan Matheson: Mr. Speckhard – Mr. Ambassador, can we ask you what your sense of how grim the situation right now is in Greece? It’s been relatively quiet in recent weeks. Does that mean there’s been improvement or is it just as grim as it’s been all along?

Daniel Speckhard: Well, it’s very grim. They revised downward the estimate as a 7 percent decline in the economy in 2011, and they’re looking at a 5 percent decline here in 2012. Job unemployment is at 25 percent overall and about 50 percent for people under 25. So it’s a very difficult situation right there now. It’s been relatively quiet, though, because there’s been a new government. The government has made some impressive moves in the first few months of its tenure to show that it’s on top of the situation and try to move forward on some of the reforms and try to repair some of the damage in relations with the other Europeans. I think that’s given them a little bit of breathing space.

Matheson: We’ve heard from the Prime Minister of Greece they need more money by November.

Speckhard: Yes, well that’s what they’re working on right now. There’s a group in town, it’s the EU IMF and East European Central Bank are negotiating this next release of 31 billion euro for the next tranche of assistance. If they don’t get that by November, they would be out of money. Partly why Chancellor Merkel is in town today is to discuss with the prime minister the final efforts to put in place a program and get support within the EU to move forward on that progress. But that’s just the next tranche of this particular bailout program that they’ve been on all along.

Matheson: We hear two philosophies on how this works. From the top looking down it sounds fine to impose austerity measures for three or four years to get the economy back on track. From the bottom looking up you hear the people cannot live with 26 percent unemployment. You can’t live with your entire family having nobody working, and your prospects are really grim indeed. So how do you balance what the people need with what the economy needs? How do they do this?

Speckhard: This is very difficult because I think the answer to that is in the form of structural adjustments. It’s not just cutting budgets, but you actually have to be changing the economy so that you’re offering opportunities for new economic activity to take place. That’s very, very difficult in a situation like this because the banks are in such terrible shape, they’re no longer willing to lend to businesses or to new entrepreneurs. There are not a lot of jobs in the private sector to take over for the cuts in the public sector. So in the short term you get into a really downward spiral that you mentioned. The IMF just recently said what their projections are is that Greece is not going to make the targets for reducing their debt to GDP ratio to 120 percent by 2020, they are well off that track. They’re saying this country is going to need new financing or new debt restructuring, something that the European leaders don’t want to hear right now at a very political time.

Matheson: Meanwhile, we have the chancellor in Athens today for the first time in three years I take it. Is it this a helpful thing to do?

Speckhard: Well I think this is important for this very fragile government in Greece to show that it has some support from the German government, which in their mind is calling the shots on additional support for Greece. It’s particularly important because three or four or five months ago there was a lot of talk about perhaps letting Greece exit the eurozone. This is a sign that Germany at least for now is saying it wants Greece to stay in. Two thirds of Greeks says they want to stay as part of the Euro. They are tired of the austerity measures, but they do feel strongly about being part of the eurozone. So this gives the new government a boost in the arms to say that hey we do have some friends in very high places. The challenge is what’s going to come next. I think in the next month or two you will see a release of this additional assistance for this next tranche, but over the next four or five months they’re going to have to negotiate new additional aid packages or new debt restructuring. That’s going to be very, very difficult given that there’s going to be elections in Germany next year and that there’s a lot of concern over how they manage Spain and Portugal as well as Italy.

Authors

Daniel V. Speckhard

Publication: CTV News

Image Source: © Yannis Behrakis / Reuters

Greece Asks for More Time

Daniel V. Speckhard — Thu, 23 Aug 2012 00:00:00 -0400

Editor's Note: In an interview with CTV News, Daniel Speckhard discusses how the Greek financial crisis is playing out in Europe.

Greece says it needs more time. It just can’t get its economic act in order, they’ve been five years now in a recession, so how long can the eurozone wait, or afford to wait, for Greece to act? At the same time, how long politically can the Greek government afford to stay in recession and have a country that’s looking at a quarter of its adults out of work?

Daniel Speckhard: I think they can afford to wait a little bit longer, because both sides still share an interest in not seeing Greece leave the eurozone. For the Europeans, they need to first be comfortable that a Greek exit would not fall over into further additional damage on the challenges they’re facing, particularly with Spain right now but also potential contagion into Italy. Until they’re confident that they have a solution to the challenges of Spain, they’re likely to talk tough, but they’re going to try to find ways to continue to drag out the discussions with the Greeks. And probably what they’re waiting for on the Spanish side is they’re looking for a way for the ECB [European Central Bank] to somehow strengthen a program to support a limit on the interest rates that countries will be facing, and you’ve seen some news recently about that. On the Greek side, the challenges there are Samaras having just been elected in June. He has to deliver something, so in response to the tough talk by the Germans that there is no more give, that’s not going to work politically for Greece. So they’re going to have to come up with some creative solutions to this, the bottom line being that probably there can’t be more direct money from Germany and the other European countries, but some other clever ways to find additional relief, either again working through the ECB or working through the IMF, so it’s indirect additional support to Greece.

Watch the full interview »

Authors

Daniel V. Speckhard

Publication: CTV News

Image Source: John Kolesidis / Reuters

The Greek Election and the Future of the Euro

Thu, 14 Jun 2012 14:00:00 -0400

Event Information

June 14, 2012
2:00 PM - 3:30 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

Greek voters will soon head to the polls for the second time in six weeks after the May elections resulted in political gridlock. The fate of the eurozone is widely perceived to hang in the balance. Syriza, now the second largest party, is vying with New Democracy for first place and has promised to reject the terms of Greece’s EU bailout if it forms the next government. Germany has sent clear signals that it will require Greece to keep its international obligations. As a result, markets are bracing for turbulence after the new elections on June 17. The U.S. and European economies are so interdependent that a “Grexit” from the euro would have serious implications for the United States, potentially pushing it back into recession.

On June 14, Brookings hosted a discussion previewing the legislative elections and their implications on the eurocrisis. Panelists included: Vice President Kemal Derviş, director of Global Economy and Development at Brookings; Brookings Fellow Douglas Elliott; Brookings Nonresident Senior Fellow Daniel Speckhard, a former U.S. ambassador to Greece; and Desmond Lachman, resident fellow at the American Enterprise Institute (AEI). Brookings Fellow Thomas Wright moderated the discussion.

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Desmond Lachman

Resident Fellow

The Last Act for Greece?

Daniel V. Speckhard — Thu, 17 May 2012 00:00:00 -0400

Editor's Note: On May 17, Daniel Speckhard spoke with Canada's Business News Network about the ongoing crisis in Greece and the steps needed to lift it out of its downward spiral.

Anchor: Our next guest has plenty of experience with Greece, he was actually the U.S. ambassador to Greece from 2007 to 2010, so he’s watching the situation closely. Greece’s temporary caretaker cabinet has been sworn in and investors around the world are wondering will voters opt to keep Greece in the Euro Zone. So let’s get to our guest. Daniel Speckhard is also Senior Fellow at the Brookings Institution and he joins us from Washington. Daniel, thank you very much indeed for joining us.

Daniel Speckhard: Thank you.

Andrew Bell: Greece’s European partners, just about everybody, has been making it pretty clear to the Greek public that – you’re not going to be voting for a government in this forthcoming election, you’re voting on whether to stay in the European Union, in fact.

Daniel Speckhard: Yes, I think that’s what they’re trying to do. It’s a little bit difficult and the message is a little bit muddied, partly because of some of the developments in the rest of Europe which have other governments being turned over on issues of austerity. And so as the people in Greece see that, for instance, the new president in France wants some softening on austerity and more focus on growth, that’s a message that rings to them as well and may not be as clear to them in the context of there is no option for them than to stick to the existing memorandum for the bailout.

A. Bell: And just to clarify things, quite a few European leaders have been saying that if Greece wants to leave the Euro, they’re also going to get kicked out of the European Union. There’s no mechanism apparently for you to leave the unified currency but stay in the EU.

D. Speckhard: Well I think that may be a message that they are trying to send. I don’t’ know if that’s really what’s understood right now in Greece. In Greece, the challenge is for them to really change the dynamic before this next election. The problem is that these main two parties that have lead the country for the post-World War II life have lost all the confidence of the average voters and so you see the extreme left and the extreme right moving in to place. And so the extreme left and the extreme right are saying this is a false option that you are being given. We can renegotiate the memorandum but we can still stay within the Euro Zone. And it’s a question of whom the Greek voters are going to believe. I do think that message is a true one, which is that there isn’t more money out there for the Greeks. So it’s going to be very difficult to find alternative ways forward towards their restructuring.

Watch the full interview at bnn.ca»

Authors

Daniel V. Speckhard

Publication: The Business News Network

European Union Being Tested by Greek Debt Crisis

Daniel V. Speckhard — Thu, 09 Feb 2012 00:00:00 -0500

Editor’s Note: In an interview with Susan Li on Bloomberg Television's "First Up," Daniel Speckhard, a former U.S. ambassador to Greece, talks about Greece's debt crisis.

Susan Li: Let't get more from a former U.S. ambassador to Greece. Joining us live from Washington DC, we have Daniel Speckhard with us this morning. Mr. Speckhard, good to have you back on the program. So is it surprising to you that one issue that outstandingly continues to wrangle early in their evening here, or late into the evening depends on how you want to see it, is about these pension cuts.

Daniel Speckhard: No, I’m not surprised. People have been talking about the pension cuts and the lowering of the minimum wage being two of the main sticking points. I think it’s good to recall that this austerity program has not just started today or it’s not starting today. The country has been under severe strain for a number of years. The economy has been deteriorating and essentially the people are starting to get frustrated in that they can’t see an end to the cuts. So you see the politicians starting to push back a little, as they get pushed by their constituencies. And, I think, probably most importantly, there is an election on the horizon and we all know, those of us who live in democracies, what happens when there’s elections.

Li: OK, well, right now we have the PASOK party spokesperson, Beglitis, saying that we are pressing up against 2 am in Athens time right now, but they might be meeting again to try to get some deal done. Do you think that might happen? I say, before dawn breaks over in the Greek capital.

Speckhard: I think that will be an enormous effort to get that to happen since the Euro group finance ministers have called a meeting for today here. So it’s going to be enormous pressure on Athens. Whether it actually happens or not I can’t say for sure because that’s politics, but I think you will see this play out either today or tomorrow, you’ll probably get some sort of agreement by the weekend. But the bigger question is will that be enough for the medium to longer term for Greece? So I don’t think this story is going away.

Li: OK, well Greece, in terms of the agreements they have made, pledging permanent spending cuts including a lower pension payment. Also a 20 percent reduction in the minimum wage. Are you encouraged by the agreements thus far?

Speckhard: Well, I think it shows how far the Greeks are willing to go to try to get their house in order and make sure they stay within the Eurozone. WHat I’m discouraged by I have to say is, you know, the IMF is the one that is pushing hard to get this next piece done because they are very skeptical that what’s going to be put together here—the total package of the bailout, the cuts by the Greeks, and the rescheduling by the banks—is going to be enough to provide a sustainable pattern of debt servicing and some room left for growth for Greece. So, I think what you see here is we’re trying to craft and squeak out a package that will just get us through. I hope that will happen, I know the markets are very anxious that that happens. But I think the challenge is going to be that is likely to get us through this step and there’s going to be a lot of skeptics saying, “is this enough?”.

Watch the full interview at bloomberg.com »

Authors

Daniel V. Speckhard

Publication: Bloomberg TV

What's Next for Greece?

Daniel V. Speckhard — Mon, 14 Nov 2011 14:39:00 -0500

Greece just dodged another bullet — one from its own gun, no less. But with the political meltdown of last week and the naming of a new prime minister, it is on the way to approving the Troika bailout package and financially staying afloat for another few months.

Few could understand what former Prime Minister Papandreou was thinking when he called for a referendum — a move that led to the collapse of his government and cost Greece dearly in what was left of the trust and sympathy it had from other EU leaders who had put themselves on the line politically for this struggling country.

Within hours of Papandreou’s call for referendum, many of my perplexed Greek friends were hypothesizing that this was Papandreou’s exit strategy – a way out of having to play the sadist in turning the screws ever tighter at the direction of their new EU and German masters, with no real end in sight to the economic recession. More generous Greek observers suggested that it was a clever ploy to force the opposition into supporting the package. However, the vast majority of Greeks believe it was a just a colossal misread of the Greek people and the EU.

Regardless of the former prime minister’s motivations, there is no doubt it has had a powerful effect in Greece. They have a new “coalition government” with a distinguished technocrat at its helm — something that the EU had been pushing for for nearly six months. Second, they have had a de facto referendum on the bailout package. And third, and most importantly, the Greeks made it abundantly clear that, at least for now, they feel strongly about staying in the Euro.

However, in spite of the strong Greek remonstrations in support of the euro, significant political work lies ahead in keeping their place in this family. For starters, Greece has to pass a budget before the end of the year that makes further dramatic cuts and implements the deeper austerity measures and structural reforms demanded by the Troika.

While this would be a Herculean task for any government, doing so with political parties gearing up for new elections will make the task of the new prime minister ever more difficult. A technocratic cabinet does not mean a technocratic parliament or a technocratic government bureaucracy. The former will be posturing for the elections and the latter will be worrying more about protecting their jobs than improving the work of the government.

It is also telling that only six of the more than forty ministerial positions in the new government are slated for the main opposition party, New Democracy, and the two main posts they have taken are Foreign Affairs and Defense, the least likely to pull them into responsibility for the misery being imposed in domestic affairs. The anemic representation was no doubt a matter of choice, as the leadership of the opposition wants as little responsibility as possible for the austerity program in front of the elections.

While the new prime minister is likely to be able to push through support for the bailout package and a new round of measures, he will still face significant problems in implementation. It will prove difficult for the prime minister to forcefully direct a cabinet chosen primarily by the parties in the coalition, and the Office of the Prime Minister in Greece lacks any significant staff support to help him oversee the work of the ministries and provide significant independent policy support and analysis.

Meanwhile, the Europeans were fortunate that the Greek drama of the last week distracted attention from their unfinished and somewhat anemic bailout package agreed to at the Summit. While a fifty percent voluntary haircut on the 206 billion euros held by private bondholders is significant, to Greece it provides only roughly a twenty eight percent reduction in the 367 billion euros of total official debt, assuming that all the private bondholders accept the deal.

And in the next four to six months, the country is going to need to borrow an additional estimated 30 billion euros to recapitalize its banks. So the net effect is that Greece will likely be able to only reduce its debt burden by roughly 70 billion euros, or nineteen percent. Even the EU estimates put the benefits of their package to lowering the debt burden to at best 120 percent of GDP by 2020, which is near the limit of what most economists think is sustainable to still have any growth.

Greece’s efforts to get its economic house in order suffers as well from the deteriorating situation in Europe. The European Commission recently slashed its growth forecast for the eurozone to half a percent for 2012, and Italy has been tested in a way that raises new challenges for the continent. With Greece’s GDP depending heavily on tourism from the rest of Europe and its shipping sector sensitive to changes in global growth, the worsening external environment is likely to cause Greece’s economic contraction to be worse than already predicted and financing needs to be even greater.

All this suggests that the drama is not over in Greece. Expect many more twists and turns in the months to come, to be overshadowed only by the larger drama of Italy and stress in European banks.

The best we can hope for in the interim is the quick approval of a bailout package and a messy but successful process to pass a new budget and implement the cost-cutting measures required under the EU. This is a tall order for a caretaker government amidst the political posturing of the pre-election season. But with the constant pressure of the EU and Troika to withhold funding and a threat of expulsion from the eurozone, this is achievable in the short run.

In the medium term, these efforts will fail unless the political leadership in Greece can articulate and effectively communicate a more positive vision for the future. Unless they can convince the population that the austerity program is leading to something significantly better for Greece’s current and future generations, the citizens will eventually reject the path that they are on. Greeks need to be convinced that that program they are being asked to implement will bring real benefits and not just a never-ending race to the economic bottom to balance the budget and pay back their debt. They need to believe that jobs in the private sector will replace the ones being cut in the public sector and that economic growth will be as important as austerity in charting their future.

A lot is at stake, not just for Greece and the eurozone, but for all of us if this fails. Greeks made it clear last week that it was ready to take another dose of horrible-tasting medicine to stay in the Euro. They will need to move swiftly in the coming days to convince European leaders that they meant it. At the same time, European leaders are going to have to be prepared to do more in the coming months to support Greece on a reasonable path back to growth if they truly want to keep the current eurozone intact. Absent more from both sides, the current effort has little chance of succeeding.

Authors

Daniel V. Speckhard

Greece: Time for Some New Ideas

Daniel V. Speckhard — Wed, 15 Jun 2011 17:10:00 -0400

Greece is being squeezed, Europe is being squeezed, and the markets are not in a mood to be generous. In Brussels, Finance Ministers and Central Bankers argue over burden sharing and the finer points of the definition of default – all in recognition of what the markets and most lay observers of Greece have known for a long time: Its debt is impossibly large for its economy to service.

The additional aid from Europe has so far only added to its burden and offered little hope that Greece will be able to return to the markets anytime soon for additional financing. And while the Greeks – with their Mediterranean temperament – have so far been surprisingly stoic in accepting their new fate, knowledgeable observers know there is a volcanic social and political eruption building just below the surface, as recent demonstrations have shown.

The current debate raging in Brussels – which focuses on whether private bondholders should bear some of the next round of support to Greece – is so vociferous because both sides are right.

Those against forcing private bondholders to rollover debt through some form of “voluntary coercion” are dead on when they argue that it requires mental contortions worthy of a Houdini to convince everyone that this is not just a structured default. And they are right to be worried of a default -- for the consequences of Greece to accessing bond markets in the future, for the Eurozone more broadly, and for the “Lehman Brothers” effect on other weak members of the Eurozone.

At the same time, those arguing that the private sector needs to contribute to returning Greece to financial viability are now recognizing the truth that there is not enough political support among the voters of the contributing countries to continue on a path that not only does not have a clear end in sight, but continues to bail out Greece and allows the bankers and private institutional investors to walk away whole when their bonds expire.

The current impasse requires something more than just the choice between equitable burden sharing or avoiding a technical default. We need to be honest in recognizing the basic math – that Greece cannot ever hope to repay its current debt burden through austerity and eventual future growth – but at the same time a sovereign default in the Eurozone should be avoided. The answer comes from the markets themselves. When a company requires a financial workout it usually turns to a combination of additional equity and new debt. This happens frequently before companies declare bankruptcy and is done on an entirely voluntary basis.

How could this work in Greece’s case? For starters, rather than just disbursing additional loans to an already overburdened Greece, the EU could invest in shares of Greek public companies slated for privatization. Privatization in Greece has had a slow start as it is both politically very sensitive and very complex to get right, as the experience of Eastern Europe and Russia have shown. But everyone acknowledges that it needs to be done, both out of financial necessity and for the long-term health of these companies.

An EU investment at the initial stage would provide immediate revenues to the Greek Treasury, additional time to work out future private sector auctions, time for the economic picture to improve to avoid a “fire sale,” and room to work through the political and social challenges in a democracy of managing significant and multiple privatizations. The EU would be a constructive and invested player in assisting in the future privatization of the Greek assets with its interests aligned with Greece in designing and timing the privatization to maximize returns and not just generate quick liquidity for a desperate Greek Treasury.

While other many Northern Europeans are likely to continue to balk at further transfers to Greece, investing in real assets should be politically more manageable. And Greek authorities will have a better shot at managing the political fallout in Greece, if the process is seen as staged, professional, and well prepared in conjunction with the EU as partner.

By itself an equity investment by Europe will undoubtedly be insufficient to meet the financing gap of Greece. While avoiding adding further debt to Greece’s burden, it would do little to address the fact that the current size of debt is unserviceable. To this end, additional EU and IMF lending to Greece should allow it to use some of the funds to “buy back” its debt at market prices. With bonds priced at a significant discount, Greece could achieve significant reductions in its debt through repurchases on the secondary market. While it would have to be done in a measured and timed way to avoid dramatically raising the cost of the repurchases and losing the desired result, careful management could accomplish this. By attacking the root cause of the problem – a growing debt burden – “buy backs” could contribute to an advancing the day when Greece can return to the markets for its financing needs.

It is understood that “EU equity investments” and “buy backs” are not a panacea to solving the financing gap and ending the debate in Brussels, and in the end a “soft restructuring” or structured default may be needed. But for now, there is a desperate need to introduce some new thinking that goes to the heart of the problem and provides light at the end of the tunnel. Solutions need to be seen and understood by the average voter in both Greece and the rest of Europe as contributing to the fundamental need to reduce the size of the debt. Without this, the patience of Greeks and European counterparts will run out and push a solution out of reach. In Greece you will see social unrest cause a political change that will all but guarantee a default and in the rest of Europe voters will make it impossible for politicians to continue to contribute to a work out that Greece can accept.

Europe seems to be stuck in impasse – and as often happens in political negotiations – the parties start confining themselves to the box they placed themselves in, narrowing the options for an outcome, and begin focusing on potential hybrids of a compromise or face saving language or incomprehensible technical fixes (e.g. “voluntary participation of bondholders with an element of incentivized coercion”) However, in this case, there is another participant that will influence the result and that does not have a seat at the table – the financial markets. To avoid potentially disastrous consequences for Greece, the Eurozone, and European economy as a whole, European leaders and their counterparts in the IMF and ECB need to introduce some dramatic new efforts to cause the markets and voters to see that there is a way out of this seemingly “damned if we do, damned if we don’t” conundrum. Equity investments and buy backs may in the end not be the answer, but it is unorthodox and creative new steps that offer the only hope with the current approach only prolonging inevitable failure.

Authors

Daniel V. Speckhard

Brookings: Experts - Daniel V. Speckhard

Mass Protests in Greece Against Merkel

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Greece Asks for More Time

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The Greek Election and the Future of the Euro

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The Last Act for Greece?

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European Union Being Tested by Greek Debt Crisis

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What's Next for Greece?

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Greece: Time for Some New Ideas

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