Ted Malloch: Greece would be better off outside the eurozone
Donald Trump’s possible choice for US ambassador to the EU, Ted Malloch, is in favor of a Greek exit from the eurozone, which he believes is something that will happen at Athens’s request in a year or a year-and-a-half from now.
Speaking on Skai TV’s “Istories” (stories) program late Tuesday, Malloch said that “the problem… is who will manage that transition, and how, to avoid all the chaos and all the instability.” He admitted he did not know the answer to the question.
In the same interview, Malloch said the issue of a Greek euro exit had not been discussed with the president, the State Department or anyone at the Treasury, adding however that Trump himself about a year ago tweeted that the Greeks are wasting their time in the eurozone.
First of all, let me ask you what you think of Donald Trump as president so far, and what do you think about the world’s reaction to his presidency?
Of course he was elected by the American people, he is not a candidate who ran to run the world government, so I think he is putting America first and I think most people say he is very active, he is making significant changes and taking down the legacy of President Obama, so it’s a radically different American political operation than we had in the last eight years.
I think that Donald Trump is a doer, so he of course is a real estate magnate and a builder, and he is not a political actor, he never held political office, so he is really very much like – if you can imagine this – a businessman or a chief executive taking power. He makes lists, and he tries to fulfill the promises that he keeps on those lists. It’s very much like a builder, building a house.
How did you meet him?
I met him over 20 years ago, in Florida, in Palm Beach, where he was very active, and actually he remains active in philanthropy and charitable events: golf tournaments and black-tie dinners to raise money mostly for medical causes.
Do you think the eurozone as a whole is going to survive? What’s your own assessment?
Well, I think certainly there will be a Europe; whether the eurozone survives, I think it’s very much a question that is on the agenda. We have had the exit of the UK, there are elections in other European countries, so I think it’s something that will be determined over the course of the next year, year-and-a-half. I think it is interesting from the perspective of Greece, why is Greece again on the brink; it seems like a deja vu; will it ever end? I think this time I would have to say that the odds are higher that Greece itself will break out of the euro.
You said that the other day in an interview with Bloomberg, and it has created quite a stir here. I don’t know how much you know about the Greek economy but it’s definitely not self-sufficient. We have to import even basic things like food in order to survive. How do you see Greece outside the eurozone dealing with that situation?
Well, I think it’s maybe a necessity. I mean it’s a good question, why? To put the question “why” first, not “how.” I mean, if the [International Monetary Fund] will not participate in a new bailout that does not include substantial debt relief – and that’s what they are saying – then that more or less ensures a collision course with the eurozone creditors. Now we all know that that primarily pressures Germany, which remains opposed to any such actions, so I think it suggests that Greece might have to sever ties and do Grexit and exit the euro. So, that’s the first fact.
I think if you look at the reality, the situation is basically unfolding in a certain direction. What comes afterwards I think is a very interesting and important question; I think we have to face some facts, I mean the first one is that the harsh austerity programs have been a complete failure. I have traveled to Greece, met lots of Greek people, I have academic friends in Greece and they say that these austerity plans are really deeply hurting the Greek people and that the situation is simply unsustainable. So you might have to ask the question if what comes next could possibly be worse than what’s happening now.
But do you think that there is any chance that the US, given the circumstances, would ever finance Greek needs in the first couple of years, because there is definitely going to be a deficit in the beginning and, as you know, we also have security requirements, the neighborhood being what it is.
No, I think Greek-US relations are strong, could become stronger. I know some Greek economists who have even gone to leading think tanks in the US to discuss this topic and the question of dollarization; such a topic of course freaks out the Germans because they really don’t want to hear such ideas. I think what Greece badly needs, if we were to think of it economically – I am really putting in the economy side – is supply side reforms. It needs debt restructuring, it really needs debt relief, and I know people in Europe don’t want to hear that. These new plans have probably happened under the IMF or the World Bank and they need to reduce the debt overhanging and that means frankly something that people in Germany and elsewhere have not been able to accept, it means a haircut to the lenders and to the banks in Germany and probably, at least in my perspective, a return to the drachma. So the problem then is who will manage that transition, and how, to avoid all the chaos and all the instability. Very, very, major question I think on the immediate horizon.
Your statements carry a lot of weight because, among other things, you have been rumored to be the next US ambassador to the EU. So, first of all, is that definitely going to happen? The nomination? Or is that something still in the works?
It’s certainly in the works; it’s a decision that has been made by the president himself, I have obviously interviewed and talked to the transition team, so we are waiting on the announcement.
And let me ask you, because it should be clear to our audience and to opinion makers here in Athens, when you express this opinion, about us going back to the drachma and so on, is it something which is sort of authorized by the Trump administration? In other words, is this a Trump position?
Well, it’s not something that I have discussed at all with President Trump or the State Department or anyone at the Treasury, but I would remind your audience that no one less than President Trump himself about a year ago tweeted that the Greeks are wasting their time in the eurozone. So you have it directly from the person, you don’t need an intermediary. I personally think he was right. I would also say that this probably should have been instigated four years ago frankly, and probably it would have been easier or simpler to do. So I also look at the polls, and in Greece, I am actually moderately surprised to see that now the majority of the Greek citizens themselves in a recent poll said that it was wrong to join the euro in the first place. Now you can’t put it back in time, but the question is, what does it look like going forward?
But if you look at other recent polls, the overwhelming majority of the population at this point still supports the euro, not a return to the drachma.
Well, I guess the polling that I have seen recently suggests otherwise, maybe there is some ambivalence in polling, and maybe we shouldn’t put too much stock in any given poll.
What do you think the US position should be on whether the IMF should remain in the Greek program? – There is a very important Executive Board meeting going on tonight [February 6] – What do you think the US official position is going to be with this new administration on that?
Well, we will see if it changes, my sense is that over time it could change and that the US is going to basically push the IMF in the direction of the kinds of reforms I have been suggesting and a more substantial debt restructuring including debt relief.
And if you spoke to the Greek prime minister, what kind of advice would you give him? Because one side is what you are saying about the debt relief and so on, but you are also talking about some very drastic reforms within the country. Isn’t that the case?
Well, we’ve been through this, it seems like four or five times, so I would ask the question again as an economist, a market-based economist, how can we get growth to return to the Greek economy? That should be the goal. How can you increase private sector activity? How can you actually bring about tax reduction? How can you instigate more public-private partnerships? How can you make the Greek economy more competitive? That would be the set of questions I would be asking. They are not really politicized questions, those are economic questions, but frankly I don’t see how you do that inside the euro that’s tilted towards other players in Central Europe and Germany.
Out of curiosity, have you discussed this with any Greek politicians?
I haven’t met any Greek politicians, as I have met any number of really fine Greek economists both at Oxford and the United States.
Have you met Yanis Varoufakis by any chance?
I’ve never met him, but I have certainly read stories about him. I’d love to meet him.
There’s been quite a bit of reaction to your potential nomination in Europe, as you know. Did you expect that, and how you are going to deal with it once you are nominated?
Well, we are not trying to ruffle any feathers, we are simply stating that under the Trump administration there will be some different attitudes towards multilateral institutions and particularly to supranational organizations, so the relationship with the EU will certainly be different. Obviously, President Trump himself favored Brexit, so he is not suggesting that it’s right or one size fits all. We’d like to see various countries in Europe make that democratic decision for themselves.
Let me return finally to one of my first questions. What’s your honest prediction about whether the eurozone and the European Union as a project is going to survive the next decade?
Oh, the next decade! Well, that is a very long-term prospect. My sense is that the euro is in a real problem zone, there would be parity with the dollar and there could potentially – given political situations around Europe – even be a euro collapse.
As to the future of the European Union, I think that it will probably – there are three or four different voices even within Brussels itself – it would probably take a different shape and form than it has presently.
