From Mohamed El-Erian’s latest editorial for latest editorial for Project Syndicate:
Greece need not continue to follow Argentina’s miserable example of 10 years ago. Yet, unless Greek and European officials reflect on that example and adapt accordingly, Greece will be driven down the same dangerous dead-end path.
El-Erian is the CEO and co-CIO of bond behemoth.
He draws various ominous comparisons between Argentina and Greece.
In particular, EU and IMF officials’ aversion to contemplating the long term results of their actions—both in regard to Greece and their own credibility. He draws the analogy here between Greece’s current situation and Argentina, where the IMF continually wrung “over-promised and under-delivered” commitments out of the Argentinian government:
A blame game broke out over who was responsible for “losing” Argentina. Official creditors, led by the IMF, pointed to the Argentine government’s repeated policy failures. The government countered that official creditors were nickel-and-diming the country, rather than providing the financial cushion needed to restore confidence and re-engage private capital. Neither side seemed willing to acknowledge what was obvious to many: the country’s economic and financial framework gave it little chance of addressing the dual problem of too little growth and too much debt.
But it was ultimately the citizens who sped the process along. Fed up with the government and its creditors and fearing the worst case scenario, they got sick of the pain of austerity and systematically withdrew their funds from Argentinian banks. Not to mention that Argentina’s neighbours were already planning for the contingency of catastrophe.
Greece can still avoid this outcome, El-Erian writes, but it must take four steps:
- “First, they should stop repeating the claim that there is no ‘Plan B,'” (disorderly default).
- “Second, Greece and its foreign interlocutors must recognise that Plan B, while not easy, has become critically necessary.”
- “Third, Greece’s official creditors should be more attentive to the expected return on their assistance.”
- “Finally, the integrity and credibility of the ECB and IMF require much greater protection.”