01/07/2011
Jan Krzysztof Bielecki: “For almost 10 years this entire risk spectrum was ignored. It seemed to many that countries, which had in the past battled the vicious cycles of boom and bust, over-borrowing and default, had finally escaped their destiny. That, thanks to the anchor of stability provided by the euro, ‘this time it would be different’. Greece, 50% of the time has been in default or restructuring”
“To be fair, the ‘irrational exuberance’ of the great moderation was not exclusively reserved to Eurozone – the United States, already suffering from twin deficits, went on borrowing on a scale unseen in history. Britain allowed the financial industry and a real estate boom to spin out of control, too, leading to the situation where 58 percent of the British economy depends on a private borrowing or public spending”
“The economic cycle returned with vengeance and pushed the world into the greatest downturn since the dreaded 1930s”
“As the crisis revealed the perennial weakness in the financial system, the moral blindness of market forces and flaws of economic governance in the Western world, it also shattered the main illusion of great moderation – that politics had ceased to matter”
“The second reason is the disconnection between the people and the political class. Political leaders must find a way to explain to their fellow citizens that the times of peace and plenty cannot be taken for granted anymore. A new political contract is essential but for it to emerge it needs less denial and more self-realisation among people and their elites. In a democracy, reform without a popular mandate is not possible”
“The dispute over the future of the euro and what to do with Greece is where this all comes to play out. The German impatience with the Greeks and pressure on the ‘south’ to accept the German vision on how the euro zone should be governed is bringing a new dimension to European politics. Some believe Germany is so fed up with Europe, that like the United States it may actually seriously consider going it alone to face global challenges”
“Supporting Greece is at the end of the day a political necessity despite the moral hazard involved. But that places an enormous responsibility on the other side of the divide. Greece and other weaker euro zone members must realize that the moral hazard is ultimately their responsibility. Sure, the EU will streamline its governance, there will be more peer pressure and more stick and carrot mechanisms to press for reform”