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Nouriel Roubini's Global EconoMonitor

A Chat with Nouriel Roubini and Daniel Speckhard, Former U.S. Ambassador to Greece, on the Future of the EZ

With Greece expected to accept its third eurozone loan tranche (€6.5 billion) later this month, Daniel Speckhard, who served as U.S. ambassador to Greece until the summer of 2010, stopped by RGE’s New York headquarters for a spirited discussion with Nouriel Roubini and RGE analysts.  The conversation went straight to the heart of the matter and addressed the timing of a debt restructuring.  At this point it is a question of when, not if, and Roubini expects such a restructuring to materialize within the next two years given that even if Greece were to adhere to the program in full, a full debt repayment at the end of the program is not credible.  The earlier such a debt restructuring occurs, the greater the chances of avoiding an effective haircut in the face value of the debt.  But the political situation will determine when this happens, and right now it appears the relevant parties are buying time.

Still, debt restructuring is no substitute for the fiscal and structural reforms that have to be undertaken in order to raise the growth potential and restore competitiveness inside the eurozone.   While the stringent cost-cutting measures imposed by the EU and the IMF on Greece and Ireland are in principle the right way to get a handle on the debt, without a light at the end of the tunnel, i.e. growth, the people will withdraw their support for reforms.  With respect to Greece, Speckhard does see opportunities for growth in renewable energy, including wind and solar, but admits that cumbersome bureaucracies, challenges in courts, and an anti-business attitude of some segments of society make it difficult to receive the much needed foreign investment, and things certainly won’t change overnight.

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Roubini steered the conversation to the obvious next question, which is what will happen in the next three months in Ireland, Portugal and Spain. Right now Germany is backstopping the debt of the peripheral countries, but do you get to a point where the costs are too great for Germany or the peripheral economies to continue in this framework?  Speckhard sees a restructuring for Greece likely, but does not see an exit from the EU, with Greek participation in the eurozone a matter of pride and significant economic side effects from a departure, even if it would allow them to regain competitiveness through a devaluation.

Speckhard shrewdly commented that to really wrap your head around the issues a PhD in economics or politics will not suffice; one needs both.  Prime Minister Papandreou has done a good job to convey that he is doing the best he can, which has bought his administration some more time.  But the road ahead is a long one, and the patience of the Greeks is likely to wear thin over time.  With political arguments heating up not only inside Greece, but within the other eurozone countries and among their governments over how best to provide support while maintaining the credibility of the system, the situation is becoming ever more challenging.

2 Responses to “A Chat with Nouriel Roubini and Daniel Speckhard, Former U.S. Ambassador to Greece, on the Future of the EZ”

Darlene KainJune 16th, 2011 at 5:50 pm

In some cases, that can be accurate, however what about the large numbers of persons who have no ability to write in this way? Do we just do nothing merely because they have little power in this planet?