Rashomon, the Eurozone Crisis and Turkey
Andrew Lo, professor of finance at MIT, likened the different financial crisis narratives to Akira Kurosawa’s Rashomon when he recently reviewed 21 books about the financial crisis.
Here is the intro. to my Hurriyet Daily News column from two weeks ago, where I went over the two distinct narratives of the Eurozone crisis, and why Turkish policymakers have chosen to subscribe to one particular story (basically it makes them look good). You can read the whole at the HDN website, and there is an abridged version (with a slightly different angle) at that week’s Roubini Global Economics Economonitor weekly as well.
As I note right below the column, about half of my graphs, as well as the “confidence fairy”, are from a presentation Paul Krugman gave in Brussels. Interestingly enough, Richard Portes of London Business School and CEPR made use of some of the graphs from that presentation in a presentation he gave in Istanbul a couple of days after my column was published. Even more noteworthy was that he was using the graphs I hadn’t used, so between ourselves, we paid full homage to Krugman:)…
Speaking of Krugman, there is a really good interview in the FT weekend, by none other then the paper’s chief economics commentator Martin Wolf, with him. Highly recommended!
Coming back to Portes’ presentation, it is a really good complement to my column (of course, it is much broader and detailed than my 500-word article), and he made a couple of really good points:
- I referred to the similarities and differences between PIIGS’ woes; his presentation is more detailed (see slide 6)
- If you are buying the Krugman/Portes capital flows story, the relevant real exchange rate should not be calculated from unit labor costs, but from the relative prices of tradeables to non-tradeables (slides 13 and 14)
The Q&A session was equally interesting as well. Portes’ take on the costs of Greece leaving the Eurozone, in response to a question by Murat Ucer of Turkey Data Monitor, is in line with what I had written some time ago. That column of mine managed to piss off a Greek reader when I posted it here (see the comments). So just to make it clear once more: I am not advising Greeks to leave the Eurozone. On the contrary, I argue that will be very costly. I am merely saying there aren’t other options at this stage. In other words, I am not saying what “should” happen, but rather what “will” happen…
And since Portes had mentioned in the presentation that Greek debt (un)sustainability exercise could be done on the back of an envelope (he noted he had literally done that in a train while talking to IMF officials), I simply asked him if the Eurozone officials were out of envelopes. He basically said that they were in complete denial, which is really scary…
BTW, he was a really good presenter, embellishing the presentation with jokes, anecdotes from his experience working on these issues and references to lots of recent research & op-eds. In case you are thinking of inviting someone to talk on the Eurozone crisis:)….
Finally, I’d like to repeat my note from last time and observe Memorial Day for my American readers. I did get to watch Saints & Soldiers, as I said I would at the end of that post, and I did like it a lot… Not big effects like Saving Private Ryan, of course, but it is a very well-done WWII movie…
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