Fletcher Features

Charles Dallara (F75, F86) Structural Reform, Strong Commitments from Europe Key to Resolving Greek Crisis

The Fletcher School of Law and Diplomacy recently welcomed Charles Dallara, managing director of the Institute of International Finance, to present the 2012 Constantine G. Karamanlis Chair in Hellenic and European Studies Annual Lecture.  In his discussion, titled the “Greek Economy at a Crossroads,” Dallara addressed the ongoing challenges posed by the Greek financial crisis and made several recommendations on how to move the economy forward.

Dallara (F75, F86) has held a number of leadership positions in the public and private sectors, including managing director at J.P. Morgan & Co., assistant secretary of the U.S. Treasury for International Affairs, and United States executive director of the International Monetary Fund. He recently served as chief negotiator on behalf of the private sector institutions engaged in Greece’s sovereign-debt restructuring.

The Constantine G. Karamanlis Chair in Hellenic and European Studies at The Fletcher School was founded in 2001 at the initiative of the Karamanlis Foundation in Athens. The Chair was set up to “promote the scholarly study of Greece, its neighbourhood, and Europe at large.” The Karamanlis Lecture was instituted as part of the endowment and has been a key feature in Fletcher’s annual calendar. Last year, the School celebrated the 10th anniversary of the Chair with an international meeting on the Greek crisis. Only a few days later, one of the participants, Lucas Papademos, was sworn in as the Prime Minister of Greece.

Konstantinos Karamanlis (F00), executive member of Fletcher’s board of advisors, welcomed the audience. As a prominent Greek industrialist, Karamanlis voiced some of the key concerns that the business sector was facing during the economic crisis. Dallara was introduced by Professor Michalis Psalidopoulos, current holder of the Karamanlis Chair. He began his remarks by paying tribute to Constantine Karamanlis, whom he described as “a towering figure in European politics; the father of modern democracy in Greece,” Dallara said. “He led the country with a sense of perspective and balance that many leaders could learn from today.”

Dallara also expressed gratitude for his Fletcher education. “If I’ve been able to make a modest contribution towards solving the Greek financial crisis, I owe it to the years spent here,” he said. “At Fletcher, I learned that there are no pure economic problems, or for that matter, pure financial or environmental problems. Fletcher taught me to see things from a holistic perspective, and I am grateful for that.”

Turning to the crisis, Dallara noted that though Greece had made some headway, momentum remains hampered on a number of levels.  First, Greek and European fiscal policies haven’t been entirely compatible, he said, and progress is hindered by “the inability of leaders to…compromise on fiscal challenges. Banks in Europe find it difficult to extend credit [to Greece] owing to huge regulatory obstacles that the political establishment has saddled them with.”

Dallara and other leaders in the financial sector have spent recent years trying to persuade investors, who are credit constrained themselves, to accept the losses that they have suffered as a result of being exposed to a turbulent economy. “For the future of Greece, they would have to give up value of 75 percent of debt claims, and that is more than a hundred billion euros. Naturally, persuading them to forego this value has been tough,” he said.

The sovereign debt crisis in Europe was not confined to one region, added Dallara. It has had global repercussions, and in his opinion, it was “a mistake” not to have had the United States and the International Monetary Fund on board in the initial stages of the crisis.

Dallara explained that since 2004, Greek governments have tried to “come to grips with a seriously mismanaged macroeconomic situation.”  He noted that he was “impressed” with the current leadership, “which has sought to rebuild credibility with European leaders, global markets and with its own citizens.”

At the same time, Dallara expressed his concern that the ascension of extreme right-wing parties within Greece might hamper a recovery. “It is simply staggering that 27 percent of the vote has been captured by fringe political parties with extreme agendas. Greece needs to understand that financial assistance can only come if you’ve rebuilt credibility with the world.”

“The strategy that Europe is pursuing today is not sensible to help Greece move past its troubles,” said Dallara. “The economy has contracted by nearly 20 percent over the past years and the pace of fiscal adjustment has been demanding. Greek resolve is not endless; Europe and the global community must show that there is light at the end of this tunnel.”

According to Dallara, structural reforms provide the best option forward. “Greece has regained external competitiveness, owing to wage contraction…but we cannot be sure that this progress would be permanent. What is needed is structural reform of the Greek economy, supported by Eurozone investment funds. Right now, the bulk of money from Europe is going to Greece’s creditors, and this is simply not sustainable in a weak economy. The interest paid by Greece [to creditors] alone is equivalent to the entire operational budget of the IMF,” he said.

Dallara observed that the attitude of European leadership to the crisis was distressing “There are no saints and sinners in this world – Greece is responsible for its problems but so are investors, and we must work together.”

Dallara concluded his lecture with sagacious words for both Europe and for Greece. “Europe and the global community have a choice to make here; Greece’s problems cannot be solved by endless doses of austerity. You must depoliticize funding, and help Athens turn the tide with sustainable reforms.”

“Greece,” he said, “would do well to heed the words of Constantine Karamanlis when he assumed the office of Prime Minster in 1958: ‘from today Greece accepts once and for all its European destiny without losing its own national identity.’”

--A student correspondent