Emergency economic summit challenges Greek finance minister on fiscal crisis

Nobel laureate economist Thomas Sargent giving the keynote speech at the Emergency Economic Summit for Greece.

For years, Greece has been sliding further into debt and the danger of bankruptcy and default. The road to renewed prosperity requires a solid commitment from government officials to fiscal responsibility and structural reform. Atlas Network held an Emergency Economic Summit in Athens on May 19 that brought together Nobel laureate economist Thomas Sargent, NYU economist Nicholas Economides, and more than 15 other economists and free-market reformers who spent the day analyzing the endemic problems with Greece’s economy and prescribing practical solutions for a fiscally sound future.

Finance Minister of Greece Yanis Varoufakis also joined the debate at Atlas Network’s invitation, providing him the opportunity to hear the structural reform recommendations of the summit and to present the Greek government’s perspective. Varoufakis held the position that the Greek government cannot be realistically expected to reform itself at this late stage and to pay back what seems like an unpayable debt, also suggesting that free-market reformers may be counterproductive in their efforts to push for solid fiscal accountability — a perspective that surprised no one in attendance. Sargent explained in his following remarks, however, that these difficult choices have to be made, no matter how painful in the short term, in order to restore long-term international confidence in Greece. This confidence is crucial to bringing back investors who have rapidly fled the declining Greek economy and to restoring the nation's credit rating within the European Union.

More than 500 business leaders, politicians, economists, professors, and others attended the Emergency Economic Summit for Greece.

The event was held in conjunction with Atlas Network’s local partners, Greek Liberal Monitor and Liberty Forum of Greece, as well as the Cato Institute and the Friedrich Naumann Foundation for Freedom. Greek native Alexander Skouras, Atlas Network’s associate director of institute relations, provided a tremendous amount of leadership and coordination in bringing the event together. These organizations and the more than 20 expert speakers and moderators they enlisted presented a plan for an escape from the cycle of crises through lasting and sound structural reforms. There were three panels with multiple participants exploring each set of issues — “Restoring Financial Stability,” “Reforming Spending and Entitlements,” and “Eradicating Cronyism and Corruption” — as well as three keynote speeches. The summit attracted several local and international media outlets, and drew a crowd of more than 400 attendees. The event was featured in more than 20 local and international news stories including this piece by international freelance reporter Omaira Gill on Vice News (article in English) and this piece in Kathimerini, one of Greece’s leading news outlets (article in Greek).

Keynotes by Nicholas Economides, Thomas Sargent, Yanis Varoufakis
After opening remarks by Skouras and other partner representatives — Ioannis Manos with the Megaron Athens Concert Hall, Ian Vasquez with the Cato Institute, Michael Iakovides with the Greek Liberal Monitor, and Harry Peitsinis with the Liberty Forum οf Greece — Nicholas Economides, professor of economics at the Stern School of Business at New York University (NYU), provided the first keynote address. Economides spoke about how Greece needs to increase its competitiveness on the international stage by opening markets to newcomers, dismantling barriers to entry, and taking a hard line on implementing structural reforms that would curtail the waste, inefficiency, bureaucracy, and preferential treatment that discourage entrepreneurial risk and impede economic growth.

Welcome Remarks; Keynote Presentation By Nicholas Economides - Professor of Economics, Stern School of Business, New York University; Panel 1: Restoring Financial Stability with Warren Coats, Georgios Bitros, Miranda Xafa, Karl-Heinz Paqué, Juan José Daboub Moderator: Constantinos Bogdanos

Nobel laureate economist Thomas Sargent provided the second keynote speech, explaining how the ongoing story of fiscal crisis in Greece is centered around the promises that Greek officials have made and the promises that they have broken. He compared the current situation in Greece to a pair of case studies in the early history of the United States. In the first case, federal officials had bailed out state debts during the 1790s after state governments had contributed heavily to supporting federal solvency, which led to solid international credit standing but also a culture of state dependency on federal fiscal intervention. In the second, the federal government refused to bail out state debts during the 1840s that had been incurred by infrastructure expansion, which led many states to repudiate their debt and dealt a significant blow to U.S. credit standing in the short term — but also led states to put their fiscal houses in order for the long term, and exercise greater prudence in spending for decades to come.

Keynote Presentation By Thomas J. Sargent-Economist, Nobel Laureate in Economic Sciences (2011); Panel 2: Reforming Spending & Entitlements with Speakers: Sven Otto Littorin, Lajos Bokros, Ivan Miklos, Kyriakos Mitsotakis, Harry Theoharis Moderator: Takis Michas

Sargent sees a great deal of commonality for the situation between Greece and the European Union today, arguing that EU bailouts and overly generous debt restructuring only enables long-term profligate and irresponsible spending by the Greek government. Sargent also cautioned, however, that however apt they may be in some regards, historical examples are never fully applicable. Sargent suggested that, like René Magritte’s famous painting “The Treachery of Images,” which juxtaposes an image of a pipe with a phrase denying that the image is an actual pipe, there’s more to the analysis of Greek debt, fiscal crisis, and regulatory failure than the mere appearance of historical likeness.

Ivan Miklos, Alexander Skouras, and Thomas Sargent.

At the end of the summit, Sargent also provided some concluding remarks in response to Greek Minister of Finance Yanis Varoufakis, who had pointed out that “For the last five years we’ve been going from crisis to crisis, from loan to loan,” and argued that it’s time for all parties to admit that Greece’s debt is ultimately unpayable and that delaying an inevitable debt restructuring is only counterproductive. In his response, Sargent observed that this same strategy of caving in to long-term fiscal irresponsibility had been tried and failed when Germany reunited with the East Germany and assumed the burden of its worthless currency.

Panel 3: Eradicating Cronyism & Corruption with Speakers: Aristides Hatzis, Simeon Djankov, Otto Brøns-Petersen, Panagiotis Evangelopoulos Moderator: Paschos Mandravelis; Keynote Presentation By Yanis Varoufakis, Greece’s Minister of Finance; Closing Comments and Response by Thomas J. Sargent-Economist, Nobel Laureate in Economic Sciences (2011)

“This is a crisis of insolvency, and the position of his government is that the people on the other side should just understand that they are not going to pay that whole amount,” Sargent said. “Given that truth — that’s the truth that [Varoufakis] talked about — the other side is just not negotiating seriously.” Sargent pointed out that if Varoufakis is suggesting that the Greek government should not be expected to reform, the many journalists in attendance should ask Varoufakis what his true vision is for Greek society — as well as his Plan B for the next post-bailout crisis generated by the government’s ongoing wastefulness.

Panels on Restoring Financial Ability, Reforming Spending & Entitlements, Eradicating Cronyism and Corruption
The summit’s panel discussions presented several reform ideas that could make up a realistic Plan B for future contingencies. In the panel on “Restoring Financial Ability,” Warren Coats, senior monetary policy advisor and former assistant director for monetary and capital markets at the International Monetary Fund (IMF), stressed the importance and role of banks in a recovery and how, at the end of the day, governments must live within their means. There’s not a choice about whether Greece must to bring its revenues in line with its expenditures, there is a choice about how that will be done — through fiscal prudence or through the collapse of Greece’s international credit and national tax base. Corruption greatly diminishes the productivity of an economy, Coats said, pointing out that external investors have no confidence in investing in Greece and are moving their existing investments out of the country, leaving a dwindling supply of money and economic activity to fund the Greek government’s profligate spending. The implication and lesson is that government officials need to urgently arrive at a satisfactory agreement with creditors in order to signal regime certainty and attract the renewed confidence of international investors.

Juan José Daboub, Karl-Heinz Paqué, Miranda Xafa, George Bitros, and Warren Coats

Karl-Heinz Paqué, professor of economics at the Otto-von-Guericke-University Magdeburg, spoke about the policy options available to Greek officials, and about two key fundamental facts that they should no longer evade: First, Greece is rapidly running out of money; second, Europe is unwilling to help without a firm commitment to fundamental reform of the Greek government. Paqué explained that the consequences are simple if Greece does not reach an agreement. Without reform, there will be a debt default followed by a “Grexit” from the European Union, which would be an even greater disaster for the Greek economy. Paqué argued that in order for the economy to recover, Greece needs a thorough supply-side growth program, with lowered barriers to enter competitive markets and invest in capital — but a massive bureaucracy stands in the way, inhibiting entrepreneurial effort and stamping out innovation and investment. Privatization is essential to getting Greece back on a track of economic growth, he concluded.

Juan José Daboub, chairman and CEO of the Daboub Partnership and former managing director of the World Bank Group, shared the case of El Salvador, where he had previously served as minister of finance and chief of staff to the president of El Salvador from 1999–2004.

“It’s better to have an imperfect market than a perfect bureaucrat telling you what to do,” Daboub said, and shared an example of the free-market reforms he helped implement in El Salvador’s telecom sector. Throughout the country, there had been an average of only three phones per 100 people. Restructuring and privatizing the telecom market ultimately resulted in an average of 150 phones per 100 people. El Salvador went from 49 percent of the population living in extreme poverty to less than 16 percent.

During the “Eradicating Cronyism and Corruption” panel, Simeon Djankov, former deputy prime minister and former minister of finance for Bulgaria, shared his firsthand experiences in the importance of focusing on corruption at the municipal level, which typically has a much lower level of political competition. External audits of municipalities can uncover a wide array of irregularities that are viewed as accepted standard practice among local officials. Panagiotis Evangelopoulos, assistant economics professor at the University of Peloponnese, discussed the danger of the infamous rent-seekers of the Greek economy, and the “side payments” to officials and entrenched business interests that accumulate to form a major part of the cronyism and corruption that exists in Greece. The only way to escape this problem is through fundamental structural reforms that limit the size of state, privatize government-run enterprises, deregulate existing private industries, and lower taxation. The Trojan horse of cronyism and corruption undermines Greece’s future, Evangelopoulos concluded.

At the end of the summit, Skouras concluded by thanking all participants and encouraging a continuing conversation about the importance of fundamental reform. “It's important to keep promoting these ideas if we are really interested in winning the battle of ideas in this country,” Skouras said.

Organizers of the Emergency Economic Summit for Greece from left to right: Dr. Tom G. Palmer (Atlas Network); Hans Stein (Friedrich Naumann Foundation); Ian Vasquez (Cato Institute); Michael Iakovides (Greek liberal Monitor); Nikos Charalambous (Liberty Forum of Greece); and Alexander Skouras (Atlas Network).

Speakers and moderators of the event included:

  • Alexander Skouras, associate director of institute relations, Atlas Network
  • Aristides Hatzis, associate professor of philosophy of law and theory of institutions, University of Athens
  • Elena Panaritis, institutional economist and former MP
  • George Bitros, emeritus professor of political economy, Athens University of Economics and Business
  • Harry Theoharis, former general secretary of public revenue and member of parliament in Greece
  • Ian Vásquez, director of the Cato Institute’s Center for Global Liberty and Prosperity
  • Ivan Miklos, former deputy prime minister and former minister of finance in Slovakia
  • Juan Jose Daboub, chairman and CEO of the Daboub Partnership and former managing director of the World Bank Group
  • Karl-Heinz Paqué, professor of economics, Otto-von-Guericke-University Magdeburg
  • Kyriakos Mitsotakis, former minister of administrative reform and electronic governance and MP, Greece
  • Lajos András Bokros, former minister of finance and MEP, Hungary
  • Miranda Xafa, senior fellow for the Center for International Governance Innovation and former executive board member of the IMF
  • Nicholas Economides, professor of economics in the Stern School of Business, New York University (NYU)
  • Otto Brøns-Petersen, director for analysis at the Center for Politiske Studier (CEPOS)
  • Panagiotis Evangelopoulos, assistant professor in the Department of Economics, University of Peloponnese
  • Simeon Djankov, former deputy prime minister and former minister of finance, Bulgaria
  • Sven Otto Littorin, former minister of employment, Sweden
  • Thomas J. Sargent, economist, Nobel laureate in economic sciences (2011)
  • Tom G. Palmer, executive vice president of international programs, Atlas Network
  • Warren Coats, senior monetary policy advisor and former assistant director for monetary and capital markets, International Monetary Fund (IMF)
  • Yianis Varoufakis, finance minister of Greece

Venue: Megaron Athens Concert Hall

Organizers and partners of the event included:

  • Atlas Network
  • Cato Institute
  • Greek Liberal Monitor
  • Liberty Forum of Greece
  • Friedrich Naumann Foundation for Freedom

Media sponsors:

  • Kathimerini
  • International New York Times
Dr. Tom G. Palmer (Atlas Network); Yanis Varoufakis (finance minister of Greece); and Alexander Skouras (Atlas Network)

For a review of the Twitter hashtag, which at one point was trending in Greece see #eesg

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