Letter to Prime Minister George Papandreou

Dear Mr. Prime Minister,

I have written to you before on two occasions and I do not give up because my wife’s home country is too important for me.

Things with regard to the “Greek problem” are going terribly wrong and they seem to be getting out of control. Let me once again state what needs to be done on the part of Greece.

Above all, I know that you know Bill Rhodes. I have worked with Bill during the Chilean/Argentine debt reschedulings during the 1980s. I cannot think of anyone else who could advise you as well as Bill.

First of all, Greece – and above all you! – have to start calling the shots. So far it appears as though the EU/ECB are calling the shots and Greece acts in consequence. Bill Rhodes will tell you that this is absolutely the wrong way!

YOU have to demand of your creditors that they form a Steering Committee with which you can negotiate. If they don’t play along, take it to the EU and have them make sure that the creditors play along.

Then you present to the Steering Committee your rescheduling proposal: 50% of the debt should be rescheduled out to 30 years with interest being capitalized (that is economically equivalent to a 50% haircut for 30 years). Another 30% should be rescheduled out to 20 years with interest being capitalized during the first 10 years. And the remaining 20% should be rescheduled out to 10 years with interest being payable from the start. That way, you will have relieved your budget quite a bit and the creditors will not have to agree to a haircut.

Parallel to that you have to develop a long-term plan about how to reindustrialize the Greek economy. What got Greece into trouble is horrendous imports (at the expense of domestic production) and capital flight in the last 3 years. If these 2 processes got Greece into trouble, you have to reverse them. Greece cannot leave the Euro at this point; that would lead to a break-down of social peace (and perhaps even of democracy). Thus, Greece has to hold on to the Euro but simulate – at least for some time – a situation as though she had returned to the Drachma: import taxes, Free Trade Zones and capital controls.

During the last months I have not tired publishing posts about the situation in my blog. Perhaps your staff will give you this one to read. I hope so!