If I were Germany and the Northern European countries that do well with the euro, and do not have spreads against Germany, I would tell all the countries that need rescuing, particularly Italy and Spain and in a smaller proportion Greece and Portugal, that Europe will guarantee their sovereign debt but in exchange they have to cut spending where it hurts less.
One area that can easily endure spending cuts is military. Why should these countries buy any weapons for the next 5 years? Greece for example has an absurdly high military budget because of unreasonable fears of a potential war with Turkey. Other than the military, these countries have to cut government spending and increase tax collection in general.
The alternative is that Northern European countries tell Southern European countries that they are on their own. In that case, those countries would default, need to restart their own central banks and go back to their own currencies. For Northern Europe this would mean enormous losses for anyone who owns Southern European bonds, and assets. Northern Europe would also lose export markets and the overall ability to consider Europe its domestic market.
I still think that Northern Europe has a lot to lose from this happening and that a deal will be reached.
Let’s say at this point I give 80% probability to a deal that saves Europe and 20% that Europe falls apart.
I believe that the Greek economy is a tumor in the EU economy. I don’t believe all of the EU is as sick and I don’t think we should bail Greece out. Instead for their own good and ours we should let Greeks go back to their old currency, devalue and default. Then we should focus on saving the banks (but not the shareholders of the banks) who lent money to Greece or bought their bonds.
Now what confuses people is that they think that sovereign default means a country not paying its debts at all. That is not really how it generally works. What we saw with Argentina for example is that a substantial part of the debt was paid. And this will be the case of Greece. They will probably end up paying 60% of their debt. That’s what they need to move on. Not a debt forgiveness but a significant debt reduction to say the levels of Portugal, Italy and Spain or around 1 time GDP (Spain is less but it’s getting there). Now interestingly I tried to find out how much Greek sovereign debt was trading for and it is trading for around half of its value. So the markets also believe Greece will default but pay half of its debt.
In European countries when people reach retirement age they should have a choice of retiring like now or belonging to a new category of people. The working seniors. Working seniors if employed would not collect pensions (only while employed of course) but also their employer would not have to pay any social charges for them. The underlying principle is that people who reached retirement age have already paid their contribution to the pension system they can stop collecting but do not need to contribute if they work. Employers would find it more attractive to keep people or hire people pass retirement age and the pension system would benefit because it does not pay out while the person who could retire still works.
The other big incentive is that because working seniors can at any point quit and collect their pension they would not be part of the forced severance pay system of Europe which is so costly and makes companies not want to hire.
So in my opinion a candidate that really understands the US economy and Northern European economies and who even understands Asian economies and can make deals with top CEOs of foreign companies to invest in Spain is crucial for our future. We also need a president who understands wealth creation, who understands the Silicon Valley quality job machine and how some parts of Spain have actually similar economies. We need a president who understands that social justice can only come after significant wealth creation.
So I am pleased to share that we now have a meeting scheduled with Rubalcaba. It will take place on August 17th at 17 hours. Easy to remember 🙂
Now the key question for Rubalcaba will be how can he be so different to the President he served for: Zapatero. He was in the same government and in charge of the same policies that saw unemployment shoot up from 8% to 20%. Rubalcaba as a candidate is as if Obama resigned because of a huge economic and financial crisis and Biden campaigned against a Republican having been the VP of the government that bankrupted USA. Still I think that before I speak about Rubalcaba I meet with him and then report about the meeting. And that’s what I will do. Maybe Rubalcaba did not have room for action, maybe he does have different ideas. In general I dislike to speak about people I don’t know. So let’s see what he thinks.
Lastly I would like to say that as opposed to my native Argentina, where ruling families like the Menems or the Kirchners, or governors like Scioli make hundreds of millions of dollars in a shameful cleptocracy this is not the case in Spain. It is not that in Spain Zapatero has been a corrupt president. Compared to say Berlusconi, Zapatero is a model of ethics and morals. The problem of Spain is not as many here think, corruption which is very small by the standards of other Latin nations. The problem is lack of imagination, creativity and overall awareness that Spain is part of a globalized economy and can only be saved by learning what works and doesn’t work in globalized economies. With a GDP of $1.5 trillion Spain still matters. And I sincerely hope my adopted nation gets out of the economic crisis it is in to thrive once more in the global economy.
Tonight I had dinner with Shoresh Moradi, a Kurdish surgeon who was educated and lives in Sweden and practices medicine at the Karolinska Hospital. During dinner in Palma de Mallorca, he told me a few moving stories of how his patients react when, instead of getting a Swedish doctor in the emergency room, they get a dark skin Arab looking man, himself. His were stories of prejudice, the prejudice that he has to deal with as an emergency room surgeon every day of his life. Interestingly, in most cases this prejudice is overcome and patients somehow go through a transformation after entrusting their lives to a perceived Muslim doctor. And I said perceived because Shoresh is Muslim in culture more than religion, very much in the same way that I am Jewish. We are both proud of our heritages, but we can also see the inequality in the treatment of women and Goim or infidels, that extreme religiosity entails both in orthodox Judaism and certain flavors of Islam as backwards and damaging to society.
During dinner we spoke about the paradox of prejudice in Europe and we agreed that it had to do with the way immigrants came to Europe. In Europe, immigrants are chosen by the exact type of job they do and that’s what their visa says. So for example an immigrant may come to Spain as a household worker and his visa will allow him or her to do just that, be an “empleado del hogar”. Europeans have no problem publicly arguing that the best jobs should be reserved for natives. This type of discrimination is not seen as prejudice. Americans instead have a system that seeks out immigrants with great qualifications and so do a minority of EU countries like Ireland for example. As a result, in most of Europe, it is immigrants who have the worst jobs and what is worse, they are then blamed for their lack of achievement, a situation that is most unfair considering how they were pre-selected to do them. Europeans conclude that people from those countries where immigrants come from are mostly inept. Now the ultimate paradox is what happens when these immigrants, while driving taxis or cleaning offices, actually go to university and end up, like Shoresh Moradi, as surgeons. Then the prejudice is even worse, as women patients, for example, believe that a Muslim doctor will treat them poorly and it is up to Shoresh to explain how this is not the case. It’s happened to him that he had to justify himself many times ahead of a procedure, or that he had to go in person to interviews in order to try to overcome the fears that his name inspires.
So Shoresh and I both agreed that while poor and unsuccessful immigrants face prejudice, successful immigrants face even more prejudice. Not from the educated elites, but especially from the average citizen in an atmosphere of anonymity (think Youtube comments). The type of citizens that end up voting for anti-immigrant parties. So in the end, both Jews and successful Muslims in Europe suffer a similar prejudice. This prejudice was taken to an extreme in the Holocaust, and is even worse than the prejudice against those who do poorly; it’s the prejudice against those who do very well. Jews have traditionally been detested, not for doing badly but for succeeding. For being one in 500 people in the planet but having one in 5 Nobel prizes or many of the top positions in the billionaires lists, or top writers, or movie makers. And this is still the case in many places in Europe, much more so than in USA where I lived for 18 years before moving here. And yes, we can go about our lives being successful, but in Spain, France and many other countries in Europe if being rich is not well regarded, being a rich Jew or a rich Arab is worse. And this is the other curse. The curse of escaping poverty and finding that prejudice was there all along and remains. If you do very badly you face prejudice because you are a loser, but if you do very well and end up in an “unexpected spot” that defeats the stereotype, there you find an even tougher type of prejudice, the one that confronts Shoresh ahead of many a life saving surgery or me when a newspaper in Spain called me “judío especulador”. If you have doubts about what I am saying and speak Spanish simply google “judío Varsavsky” and read the first 30 results.