Restarting Greece Afresh Greece: dealing with the Past, Present, Future

1. Restarting Greece Afresh Greece: dealing with the Past, Present, Future Jacques DELPLA Milos, 13 July 2012 Conseild’AnalyseEconomique, Paris

2. Troïka programs have failed (Flows) • It is impossible for Greece, without inflation and devaluation, to absorb 100% of the shock: • In the US, in case of asymmetric shocks, Federal level absorbs 20% to 40% of the shock through automatic stabilizers. • Troïka programs suppose that Greece would bear 100% of the shock •  impossible •  We must find Mundellian Transfers in the Eurozone Jacques DELPLA

3. Troïka programs have failed (stocks) • Troïkaprograms have failed because • they have not solved the massive private debt overhang • and public debt overhang (despite PSI+) •  Greece needs a generalized Chapter 11 Jacques DELPLA

4. Dealing with the Past: debt overhang A generalized Chapter 11 in Greece Jacques DELPLA

5. Dealing with explicit and implicit domestic debts • Proposed reform : Restructuring ALL debts • Cut-off date : DD/MM/2012 (or 2013) • “ALL (economic and social) contracts signed AFTER cut-off date are SENIOR to contracts signed BEFORE the cut-off date” • Would apply to ALL contracts under Greek law Jacques DELPLA

6. Would end credit crunch and restore growth • Would end credit crunch by securing fresh money and start new fresh loans to finance growth •  Would entail general debt equity swaps for • Banks (like in EC Barnier’s latest proposals). • Corporates • As their legacy debt would be juniorised or swapped into equity Burden would fall on legacy debt & equity holders Jacques DELPLA

7. Would juniorize all implicit debts • Past implicit liabilities • Pensions • Implicit claims • “avantagesacquis” • Would be juniorized and restructured •  cleaning and clearing past arrangements that have precipitated Greece into bankruptcy and economic chaos Jacques DELPLA

8. Would allow “internal devaluation” • As in ALL companies or public administration, • New labor and wage contracts would be senior. • Existing employees would be proposed to sign new labor contracts with, most likely, lower wages • If they refuse, face the possibility of being paid only after all new contracts have been paid. •  decentralized and voluntary internal devaluation Jacques DELPLA

9. Why would Greek Government and Greek people accept that ? • Would clean past internal imbalances • Would start Greece afresh • Avoid debt deflation • Would allow growth to resume • Make elderly pay; preserve the youth • Would be conditional on investors agreeing to restructure Greek sovereign debt • (which is now under UK law and with a very strong seniority) Jacques DELPLA

10. Dealing with the present: Mundellian Transfers An Unemployment Insurance in the Eurozone Jacques DELPLA

11. Need for Mundellian Transfers • We call for “Mundellian Transfers” to save the €, analogous to US automatic Stabilizers • With strong & credible conditions: “no money without reforms, no adjustment without money” • Mechanism design for a EZ • Full of eco & pol incentives: • ‘opt-ins’, ‘opt-outs’, • finite duration. • Inter-Governmental scheme. Jacques DELPLA

12. A Euro-wide Conditional Unemployment Insurance • The FUND • Creation of a € unemployment insurance fund • 1% of each country’s GDP • + maybe € job training funds (0.5% of GDP) • Managed by European Labor Agency (EC) • But an Inter-Governmental Scheme • It is an opt-in program • Each year, • Each country • can decide or not to participate Jacques DELPLA

13. The Eurozone Labor contract • Definition of an EU wide Labor contract : • Unique for the whole €-area • Unique for all sectors • Would be the (N+1) contract in each country • With full Flexisecurity • Designed by former PM Rasmussen & Persson, • + Blanchard Tirole2003: bonus / malus • + increasing rights in case of dismissal • + higher u/e contributions for employers Jacques DELPLA

14. Workers’ options • When hired, each worker has the option • Until last moment, to signfor : • National contract + national insurance (status quo) • OR, sign for : • Eurozone labor contract • + (national + EZ) unemploym.insurance • + (national + EZ) job training • In any case, access to national insurance. • € insurance optional, in exchange of flexibility Jacques DELPLA

15. Properties • decentralizes flexisecurity decision to the the individual. • By-passes political difficulties of reforming national labor laws. • Transfers money from booming countries to depressed areas, where it is most needed (u/e) Jacques DELPLA

16. Dealing with the Future : Making Greece the first Country truly member of the EU FEDERATION Jacques DELPLA

17. Greece, the first country to join the EU Federation, à la Jean MONNET • Greece accepts full shared sovereignty with EU • For important decisions: • Two executives in Greece: • Greek government • EU Commission • Two Parliaments: • Greek Parliament • EU Parliament • Each decision needs double YES Jacques DELPLA

18. In exchange • Greece would benefit from : • Permanent transfers (like in the US) • EU Help for institutions reforms and build up • EU permanent Guarantees on • Laws • Property rights • Civil rights (avoid Hungary now) and civil peace • Defense and security … (see after) Jacques DELPLA

19. Exit Option • We do not want anything like the US Civil War of 1860-65. • To force a country to stay in the Federation • Exit Option: Greece can withdraw from the EU Federation • And become a normal EZ country • Would lose all the special benefits, especially transfers Jacques DELPLA

20. The European Army • Let us create a European Defense Community (like Jean MONNET’s idea in 1952) • With the merger of all/ some parts of national armies (including the UK & Poland) • Financed by 1% of GDP in each country • Ex: France defense now (2% of GDP) • One part of the Army (1% of GDP)  EU Army • Another part (1% of GDP)  remains French (nukes) • In the long run, all French Army would be European Jacques DELPLA

21. Greece in the European Army • Greece would merge ALL its Defense in a new European Defense and Military Union • No Greek Army as such anymore • Because of its history and geopolitical situation, in Greece would be stationed important components of the EU army (troops, navy…), with both Greek and EU soldiers / officers • Greece would specialize in Defense, like South Carolina in the US Jacques DELPLA

22. Impact for Greece • A complete Security guarantee, stronger than NATO: • attacking Greece, is like Pearl Harbour in the EU • Greece would spend less on its defense • Would receive massive transfers from this EU Defense Community • About 5% to 10% of Greek GDP each year • (paid for mostly from Germany, Austria…) Jacques DELPLA