Getting a strategic ally on the ‘faithful path’

The complex puzzle of the Greek crisis, which had not only a significant economic dimension, but an important geopolitical one as well, is analyzed by Jack Lew, US Treasury secretary (2013-17) in the Obama administration, in this interview with Kathimerini.

He talks about his frequent contacts with European officials, but also successive Greek prime ministers who tried to explain that alongside the restoration of fiscal discipline, they also had to protect the social fabric of the country. Lew remembers his discussions with former premier Alexis Tsipras, his surprise at the announcement of the referendum in July 2015, and how the opposite policy was subsequently implemented by the Greek government.

He points out the differences between Americans and Europeans in relation to the policy mix that Greece was told to implement, while revealing that there was a big change in Germany’s attitude when Greece played a crucial role in managing the refugee crisis, bringing Berlin closer to Washington’s position, which was in favor of a balance between economic needs, social cohesion and geopolitical calculations.

Finally, Lew, who was the White House chief of staff in Barak Obama’s first term, talks about the effects of the energy crisis and the prospects of the three largest economies – the US, the EU and China – which determine the course of the “fragile” global economy.

Last week, Lew received the Lord Byron International Prize and participated in a discussion at the American College of Greece on a values-based approach to crises.

Has the damage from the crisis has been repaired? Are we on a positive trajectory, given all the global uncertainties?

When I was in an official position I spent a great deal of time dealing with Greece’s financial crisis. Through a series of policies implemented by successive Greek administrations, and with the global community stepping up to be supportive of a restructuring in Greece, the country was able to go through this very difficult period. The very high unemployment is down, growth coming out of Covid is pretty strong, and I think quite importantly as we’ve gone through a geopolitical crisis, Greece has been there being supportive of Ukraine, working with like-minded allies in Europe and the United States to provide support, and to this day Greek ports are an important point of entry for assistance going into Ukraine.

The geopolitical angle was actually part of Washington’s argument during the crisis.

During the days of the financial crisis I remember arguing with many of the parties that we have to look at Greece not just as an economic challenge, but as a strategic ally, a country with shared values, with which for a half a century or more we had very strong relations. We thought keeping Greece in Europe was important for Greece and for Europe.

Coming out of the financial crisis, in this period we are now, we realize how important that is. So, it was a good thing for the world community to be there and that’s one of the reasons that I devoted a great deal of attention to it. I think it was a good thing for Greece because through the difficult process of imposing policies that did cause hardship, Greece got back on this faithful path. Now the question is going to be: In an uncertain world, can Greece stick to a course that controls what it can so it has a sustainable economic outlook?

As I’ve looked at the recent numbers from the IMF, the forecasts are that Greece can be in a sustainable position. No country is immune from the shock of global economic and geopolitical shock, but if a country takes the steps on its own to be as strong as it can be, it’s in the best position to come through in a strong way. I am proud of the work that we did with Greece during a very difficult time and I think the shared values between the US and Greece regardless of which party has been in power in Greece, were and are very strong, and I think they are staying that way in the world today.

In hindsight, did the eurozone handle the crisis in the best possible way? There was a lot of pressure from the Obama administration, both your predecessor Tim Geithner and yourself, pushing for a different mix.

There is no secret that we had a different perspective on the right mix than some other countries in Northern Europe. It was not just Germany. The fundamental realities were that we agreed that there needed to be economic stabilization, that there needed to be international support both within Europe and from the IMF. What the mix was flows from a tension between different views about fiscal probity being the very most significant consideration versus social cohesion and the probity being in the balance. A lot of the things we did with Germany did cause significant pressure to be put on Greece to make reforms and to reach goals that were hard domestically. Greek governments, and I dealt with two of them when I was at the Treasury, of two different parties, made it clear that they had to worry about the social cohesion and fabric as they implemented policies.

Was there a delay in the EU responding to the crisis? 

Could it have been done a little more quickly with a little less drama? Possibly. In hindsight, what I saw was a real change in Germany’s attitude when Greece played a critical role in the transit of immigrants during the immigration crisis in Europe, and I saw that as coming closer to the US position of looking at the balance between economic needs, social cohesion, and strategic alliance. We came closer and it was in that environment that solutions were worked out.

So, no specific fault there.

I will not criticize other countries that have to balance their own domestic politics and try to maintain support for their approaches, but it was not a secret at the time that we thought that for a relatively small economy, the loss of an ally with common values was not an acceptable outcome. And I’m very glad that, looking back, we reached a set of policies that brought Greece back on its feet economically, that created an environment in which reforms could continue, and candidly, where democracy survived and not just survived but survived strong.

We thought that if we were not one of the parties pushing for an effective resolution it might not have happened. That is what a friend does. We helped them to understand each other when sometimes it was not that easy. And today it’s not so much a question of what Europe does for Greece as much as a question of what Greece is able to do for Europe, and if that does not prove that what we did was the right thing to do, I do not know what does.

Can you recall meetings or discussions you had with some of the protagonists in the Greek crisis?

I had dozens of conversations with the prime minister of Greece, the finance ministers of most European countries, the leadership of the IMF and European institutions. I was very struck at the decision made to have a referendum on whether or not to accept the terms that the international community was demanding. From an American perspective I remember asking the prime minister how that was going to give him the ability to make a decision if the vote came out in a way that the public was against some of the austerity measures. He made a strong case that the Greek tradition called for him to listen to the people, and the vote happened and when the result came in it seemed to me that it would become an obstacle that, in American terms, would have not been easy to navigate around. But I was very impressed that the prime minister, after listening to the people, also understood that there was a mandate for leadership and that became a context in which to frame the plan and tell the people, teach the people, why that step had to be taken. It was kind of eye-opening that listening and then doing the other thing, and explaining why, helped to keep a democracy vibrant. I cannot imagine it elsewhere; look at the UK and a similar vote on Brexit, a very damaging decision for the UK. But every system is different and the structure of that was that it did not lead to a policy directive but it was a context in which the government could lead the people to a solution that did involve more pain than the public wanted. I can’t explain exactly why that was the right decision from an American perspective, but it barely gave the government the ability to make decisions nonetheless.

With respect to the global economy, inflation seems to persist, while the energy crisis is hitting everyone. What more should governments and central banks do?

The global economy is in a pretty fragile place right now. We’re coming out of an extraordinary pandemic which caused havoc, and the response, while preventing it from becoming a long-term recession or depression, had consequences. At the same time we have a political crisis that is creating anxiety and uncertainty, but it is the roiling global energy markets that have a macroeconomic effect and in Europe it’s constraining the supply of energy which is critical both for industry and home use.

You have to look at where we are now as being still fragile. The United States has a strong economy with the challenge to get inflation under control. Consumer demand remains strong and our policy makers, particularly at the Federal Reserve, are trying to slow the rate of economic growth to contain inflation without triggering a high unemployment rate. Whether they can accomplish that is obviously something that remains to be seen. I said for a long time that it will be a bumpy landing in the US. I am optimistic that despite some bumps, we can get through it and remain strong.

Europe seems more vulnerable.

Europe is in a more fragile place. The fact that energy supplies to Europe are so dependent on Russia is something that has had real consequences in these past six months and it will in the winter ahead. For whatever reason, if Europe doesn’t have access to sufficient energy to meet all of its needs it will face the terrible choice between heating for homes and running industry. I’ve been impressed by the way Europe has prepared itself for this both in terms of building reserves and in terms of the unity of purpose, coming to terms with the need to take some extraordinary measures to make sure that the balance is struck in a way that maintains as much as possible economic growth and meeting personal needs. With that said, we don’t know how cold the winter is going to be, we don’t know if those reserves will be sufficient, and Russia has kind of accelerated some of these issues by cutting off the gas supply.

And China?

China, because of its Covid shutdowns, because of policies made and also demographics, is experiencing slower growth than in recent years. It’s hard for me to see how it can become as robust as it was. I don’t think that China is going to go into some deep decline, but as the global economy depends on the US, Europe and China, and the United States has grown steadily but slower because of the higher interest rates, and if Europe is level or maybe a little negative, and if China is slower, it just means a sluggish global economy and that is what we are going to have in the next period.