Saturday, August 15, 2015

Global Cooperation: Easier Talked About Than Done - Part II

We have proposed here on the blog that we can use what is happening in Greece as a real world live experiment on a small scale to project how things may work out on a much bigger scale. This article in The Guardian shows us why cooperation on a global scale is so difficult to achieve. In this case it's about all the factions involved in how to deal with the sovereign debt problem in Greece. But the lessons we can learn certainly apply on a global scale. First some quotes from The Guardian article, then some comments.


Right off the bat, we get an idea of how things are going from the title of the article:

European Union backs IMF view over Greece – then ignores it

Here are some quotes from the article:
"The good news for the International Monetary Fund, which has been saying for ages that Greece’s debts are unsustainable, is that European lenders now seem to agree.
There are “serious concerns” about the sustainability of the country’s debts, the three European institutions negotiating the latest bailout said on Thursday. They think Greece’s debts will peak at 201% of GDP in 2016, which is roughly what the IMF said a month ago when it projected a high “close to 200% of GDP in the next two years”.
So what should be done? Unfortunately, that is where unanimity seems to break down."   The IMF’s view of the options in July was blunt. First, there could be “deep upfront haircuts” – in other words, a portion of Greece’s debts to eurozone lenders would be written off, which, reading between the lines, seemed to be the IMF’s first preference. Second, there was the politically-impossible policy of eurozone partners making explicit transfers to Greece every year.
Or, third, Greece could be given longer to repay, an approach likely to be more palatable to European leaders. But this option came with a heavy qualification from the IMF: “If Europe prefers to again provide debt relief through maturity extension, there would have to be a very dramatic extension with grace periods of, say, 30 years on the entire stock of European debt, including new assistance.”
Is Europe ready to be “very dramatic,” as the IMF defined it? Almost certainly not – at least not in Germany.    . . . . . "
"In the first Greek bailout of 2010, the IMF bent its own rules to take part, declaring Greece to be a special case. That led to accusations it was trying to save the euro rather than help Greece, a charge reinforced when the IMF, in an excruciating piece of self-analysis, later confessed its economic projections had been “overly optimistic”. The IMF, surely, won’t want to get into another mess of that sort.
There will, however, be heavy pressure from Germany to compromise and dilute the debt relief. It will be hard to get any bailout package through the German parliament but the task might be impossible if the IMF won’t endorse it."

My added comments:
Here we have another example of the difference between talking about cooperation versus actually doing it. We get lots of statements about how "we are all in this together" and how "we have to set aside local interests for the good of the whole" etc.
Then reality shows up. Nations (and people) have a very difficult time setting aside their own interests for some kind of "greater good." Many times they will hold on to a position no matter how out of sync with reality it may be. In this case, Germany and the other hard liners in the EU simply refuse to accept the obvious. Greece cannot pay off their debt no matter how many meetings are held and rules imposed from outside the country. The IMF just simply tries to point out that obvious fact, but cannot even get agreement that leads to cooperation on something that obvious (that everyone with a 8th grade education can see).
What is the pattern we see in the real world? The pattern is that people talk about working together to solve problems, but run into competing interests (remember we have a complex system). Faced with this reality, inertia sets in and nothing that will actually address the real problem or solve it is actually done. Finally, a crisis point arrives where something has to be done (a debt default date in the case of Greece). At that point there is a mad scramble to try and piece together some kind of compromise that will at least prevent an immediate crisis (but does not really fix anything long term). 
What can we learn from this?
Global Cooperation: Easier Talked About Than Done

Now, think about the task of trying to get all the nations of the world at the IMF to agree on reforms to the monetary system that will require nations (and people) to act against their own self interest in some respects. This is why things move very slowly unless some kind of crisis is forcing the issue. It just means that under normal (non crisis) conditions, it is much harder to get cooperation in a complex global system and this slows down change (good or bad) in the process.

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