Greece will default by summer 2012

My colleagues Andreas and Florian have already given some interesting thoughts on Greece. No wonder, Greece was one of the most discussed topics at GES 2011. But why is such a small country, with a government debt of 328 bn euros (4,2 percent of total Eurozone government debt) important enough to be discussed at all? Well Greece – although small – took over a catalyst role in the last 2 years. Greece plays a key role in triggering mistrust towards other peripheral EU countries like Portugal, Ireland, Spain and Italy. Every time bad news came from Greece, the Euro course dropped down and CDS for other countries were influenced negatively. Markets mistrust these states, and if the situation will keep worsen that fast, they can start to mistrust Italy and Spain even more compared to now. I agree with the broad opinion that Greece will default (probably by summer 2012). So why “throw good money after bad money” as one of participants of the session “Redesigning Fiscal Consolidation and Debt Management” asked?

I see only one possible way out of this crisis. Firstly, until we develop a system of sticks and carrots we must force Greece to undergo structural reforms, as good as we can. In this time, other countries should do their homework too. Spain, Italy, Portugal and other supposedly unstable countries should improve their fiscal situation in order to demonstrate the markets that they are able to cope with their challenges. This will calm the markets, even if Greece will (be forced to) exit the Eurozone (sticks) and undergo a massive Haircut (carrots). If we now “stop throwing good money after bad money” this would be a bad sign for markets and for other peripheral states.

Is Greece willing to change?

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While sitting in the train on my way back home from Kiel I was thinking about many things. About new people I’ve met, about the first interview of my life (and that with the Finance Minister of Turkey), about the only East European guest from Lithuania, Vladas Lasas, about 2 days of trying to write blog posts and not being able to do that properly, due to a lack of journalistic experience. But mostly I was thinking, whether the GES 2011 has changed something?

And then I remembered the sessions I took part in and conversations with some of the GES 2011 participants… the main cause of such events is and will be networking, building bridges, help finding new ideas, people and support for both, current and future projects.

So the question arises: do we need such a big event with over 400 people taking part? Do we need all the debates? Do we have to vote for solutions that were not even discussed at the panels? Couldn’t a weekend at a wellness hotel be enough?

I think no! For sure, no problems were solved at the GES 2011, nor will be at the GES 2012 in Rio. But one thing remains important: to attract the attention of all these mighty people living in wealth and carelessness. It’s important that they deal with the problems that affect millions if not even billions of people every day.

Between the coast, the main train station and a run-down parking garage, the GES 2011 was a great event. Here are some concluding remarks:

A recurring claim: New mechanisms

One statement that appeared in all panels was that old mechanisms for governments interacting with each other on a global level don’t work anymore. They were designed in an other time after the Second World War: The Bretton-Woods-System and its executive institutions, the International Monetary Fund (IMF) and the World Bank took care about the financial systems and the economic development of what used to be called Third World Countries. The United Nations were the mechanism for foreign policy and diplomacy. The security council can influence war and peace as well as sending troupes. Probably the European Union was the most successful form of international coordination and collaboration, leading its countries to a common market and in parts even to a common currency. All three examples suffered from high level misuse: Nearly 70 times Eurozone governments ignored the limits of a 3 percent deficit cap compared to the GDP and went over the allowed 60 percent sovereign debt relative to the GDP. The United States ignoried the security council, when it decided to go to war in Iraq. The IMF and the Worldbank were highly critized for supposedly wrong recommendations towards Asian and Southamerican countries in their currency crisis in the late 1990s. All these things accounted for a loss of credibility. Click here to read more »

In more abstract terms, this debate was an interesting controversy about how much state will be needed in the transformation process of economies necessary because of the depletion of resources. Different positions of the political spectrum of pro and contra state were represented. Some argued that the market and the individual’s responsibility was the only thing to rely on, others and they made a much stronger case, called for a strong state as only possibility to confront those challenges.

How can the state provide then a framework for a more sustainable recourse strategy? The key elements debated in this panel were improving transparency and incentives for ecological practices

Transparency

There was the claim of a mandatory disclosure of all transaction for any company investing abroad, enforced by politics to ensure transparency.

This strategy aims at a problem known as “the resource curse”. The term describes a very high probability of corruption in countries that generate a big proportion of their revenues from natural resources. Different than tax revenues, where the tax-payers want to know what their money is spent on, natural resource revenues are more like a rent, comparable to development aid payments, where the political elite has no need of justifying what the money is used for. Thus, transparency is often so low, that the public doesn’t even know how much revenue is generated from natural resources. (More details: Paul Collier, The Bottom Billion). Click here to read more »

• Arun Maira is an elegant man with grey hair, strong tractions and a smile that makes him look like a boy. He seems pretty vital for a 67 old man. Living in Dehli, India,  he serves there as a member of the economic planning commission. He had studied physics before working for Tata Group for 25-years. Later he was with the Boston Consulting Group. He publishes articles and books.
• The Planning Commission of India is a governmental institution, that gives directions for economic development in five-year plans. Until 1990s the policies were rather restrictive, following socialist ideas. Since then, economic policy has changed and the economy opened up. The latest, eleventh five-year plan is for 2007 to 2012.
• In an interview in the wine cellar of the hotel Atlantic Arun Maira talks about India’s economic situation, the need of participation in a democracy and an a better system in the “new normal”.

India’s economy was liberalized in the early 1990s. Why is there still a planning commission?

Arun Maira: Because there was one. When things change it takes a while. Two years ago, when the new government came, they asked the question you are asking. And the answer was: No, we should not have a Plannig Commission. The challenges in India are a lot of change for the country. For doing the right thing you need to have a kind of radar. The planning commission need cannot say the people what to do or not to do like 50 years ago, but you can give them very good insight and information. This required to be fulfilled by somebody and the best organization available is the Planning Commission.

So it is rather a think-tank?

The Planning Commisson is situated at the right level, chaired by the prime minister. It invites experts in different fields to its members, like myself in industry. It is a think tank embedded in government, so it is like an official think tank.

India is one of the fastest growing economies. What is the basis for this?

One is that we have very large unfulfilled potential. We have a lot to improve in terms of productivity and efficiency. Second is that we are a young country, so there are a lot of people with energy and new minds. This also gives a boost. Click here to read more »

Five influential women discussed the problem of how to improve board diversity during the panel session “Board Diversity and Corporate Governance”. The discussion between Irene Natividad, president of the Global Summit of Women, Barbara Krumsiek, director of the Acacia Life Insurance company, Jane Shaw, chairperson of the board of directors at Intel Corporation, Vuyokazi Felicity Mahlati, chairperson of the Board of Directors if the South African post Office and Elizabeth Broderick, sex discrimination commissioner of the Australian Human Rights Commission contained more facts and figures than many in the audience were able to digest at the pace they were presented.

Figures on the percentages of women on management board were presented (Norway being the leading country in Europe, Italy the worst example). Comparisons of different regions, of countries that do have a quota for women on management boards and countries that do not have such quotas were followed by before and after quota conparisons, all presented in tables and graphs that made many heads spin.

Although coming from different countries and different backgrounds, all panelists agreed on a number of aspects:

• Increasing the number of women in top-level management positions is not only desirable, but a social and economic necessity.
• The number of women on management boards is not going to increase without top-down intervention. “We cannot wait to be taken to the top, it is not going to happen”, one panelist said. Another added “we tried buttom-up and that did not create the desired results. So now we’re getting the necessary changes done top-down”
• Quotas are effective in increasing the number of women in top-level management positions, but there are also examples of countries that achieve comparably high percentages of women on management boards without a quota (such as for example Finland).

Click here to read more »

“Norms for a Global Governance” was probably the most enlighting (and last) panel I took part. How should governments interact with each other on a global level? Which values should prevail and influence actions? The talk was on the one hand philosophical, using by using Locke, Hobbs, and Bentham for argumentations, but also practical by specific proposals and recommondations for politics. With participants from Asia, the United States and from a Eurozone country, two of them living on two continents and with their jobs ranging from government, private sector to NGOs, there was a good mixture of views on the world.

The talk was in the nicest room with two walls being windows to the coast. The five persons on the stage jumped from one topic to the other, led by an entertaining moderator. Nobody talked to long, but long enough to make their points. The people in the audience were in a good mood and asked good questions (Or were even dragged into the debate by the moderator – at least the one person, who was probably the most powerful at that moment in the room).

Following ideas for norms and governance were addressed:

On How to Manage Global Governance

International organizations like the UN, WTO, IMF and so on seem to be kind of powerless. Finding mechanisms for the globalized world of the 21st century is therefore crucial. “The institutions today werde designed for yesterday.” But: Before we can create new and innovative ones, it is important to define “what are the ultimative core values of our societies”.

Click here to read more »

This panel was a cast of distinct international personalities from Finland, USA, UK, China and Brazil. The first impression I had after the introductory speeches of Brazil and China was that they were very self-confident and proud of their fantastic economic progress in the last decades.

Phrases like: the BRICs (Brazil, Russia India, China) are doing better than the “crisis countries” (meaning the US and EU) not only in terms of debt-ratio but in almost all economic categories. And: Decision-makers in the BRICs see a deeply flawed financial policy in western nations due to a lack of leadership. The BRICs on the other hand have had 20 years of solid growth because they have better political leadership and solid financial policy. So in their air they were definitely on a par with the EU and US representatives.

A failure of political implementation

While the 2008 source of the crisis was seen in the financial system (starting with unsustainable credit packages like sub-prime credits) the current debt crises is directly associated with a failure of political leadership in Europe and the US. Thus the governments and political institutions, one might evenargue the multi-party system and democracy itself are in a severe crisis. Click here to read more »

It is just natural for humans not to appreciate daily things. Honestly, we take quite everything for granted. In rich countries insurances are a good example for this phenomenon. If you ask a random guy which three things are easing his life, insurance rather won’t be among them.

In developing countries, where most people do not have access to insurances, any incident can destroy livelihoods. Getting seriously ill, crashing a car or for farmers simply bad weather conditions. Insurances are extremly important for reducing risk and that just means: they enable you to live your life properly.

Let’s talk about microinsurance

The discussion “Insuring the Poor” was held in the morning of the last day of the GES 2011 and dealt with this topic. How can we provide the poor with insurances?

Click here to read more »

At a first look, practicing Open Innovation in companies seems to be quite crazy. For all the years it’s said: labor costs are too high in Europe, we have to be the leader in the fields of knowledge and innovation. That is possible because we have highly educated people, our welfare is based on human capital and we benefit from a knowledge advantage of at least 10-20 years.

Sharing knowledge to produce Open Innovation means giving up this advantage. So from an economic perspective, an potential advantage Open Innovation creates has to be higher than the business advantage gained through having more knowledge than the competitor. If big companies use Open Innovation they use it not at all their business fields. Knowledge is shared only in specific projects, for example in a joint venture. Setting up a research team on a special topic takes people to work together and generate profit out of this. For the short term, this might be the form of establishing open innovation in business. When it succeeds companies will try out enlarging the concept.

This is a riskless and very inefficient method, but I think it offers great chances to convince people as well as other companies.