3 Comments on the SGP3

I would like to contribute three comments regarding the recent Franco-German agreement arrived at recently. This post is a poor contribution to more enlightened commentators’ criticisms of the proposed SGP3.

The first, is a criticism to the article from Charlemagne, which completely fails to mention what I think is probably the most important part of the agreement. The last four paragraphs describe the issues both countries want to see changed that require treaty changes. It fascinates me how the Economist would fail to mention that apparently France has come on board with Germany in terms of cancelling council voting rights. This isn't the most intelligent proposal that's ever come out of a Franco-German agreement, and is offensive to the intellect of anyone reading it and makes a mockery of European solidarity and democracy. It's an insult to the intellect, because anyone who expects every single country in the Euro-zone (much less in the EU) to approve a treaty change denying any given Member state of the EU the right to representation is either disconnected from reality or seriously thinks the rulers of small countries are stupid and their citizens inert.

If we have learned anything since the creation of the Eurozone and the misfit application of the SGP, is that indeed we are not at all equal. Several countries have failed their SGP obligations. Portugal in 2002, Germany and France in 2003, Italy and the Netherlands in 2004 and finally Greece in 2005 all failed to live up to the SGP. The only country that ever came close to being punished was Greece. When the problem hurt France and Germany they decided to change the rules. That's why we are now talking of the SGP3 rather than SGP2. As Caballero, Cababllero and Losada 2006 and Chang 2005 describe, Germany and France are clearly more equal than the rest of the Member states. Call them primus inter pares. As Thornhallson 2006 explains this is understandable. However, it is morally highly objectionable. It should be clear to anyone dedicating even a minute of their time to the ongoing debate about the reform of the SGP, that although France is endorsing a German proposal to withdraw votes from countries not fulfilling their obligations under the SGP, neither France nor Germany will ever let other countries do that to themselves. This is a policy for others and shamefully so.

No contagion: The irrelevance of greek debt restructure to healthcare service suppliers

John Dizard of the FT warns us that "Greece is restructuring debt". Now this is misleading but it is well written. It is misleading, because Greece is not restructuring all of its debt, only the debt of the healthcare system. It's a well written title because the author only refers to debt, which implies some debt, not all. It's beautiful when the media uses semantics to say one thing while subliminarly implying its hyperbole. Anyway, this news seems to have been picked up by Yves Smith at naked capitalism who has some further comments on it. Moreover this restructuring is happening despite it's fantastic performance, according to the IMF (via Tony Barber of the FT). Is this horrible? Well its not good, particularly if you are the relevant pharma companies. However I would guess that this is debt that Greece can afford to restructure and that the rest of the EU can afford to let it restructure. I would suppose that Greece's small size makes it a fairly small customer and thus it would have little effect on the world market for health care products. Alternatively, and because I know nothing of the market and regulations of healthcare in the EU, other than what this article tells me, if healthcare is a protected industry then whatever economic hailments may befal the pharma companies will be limited to such Greek companies. In conclusion, there cannot be much or any contagion from this restructuring. This reality of healthcare suppliers is clearly opposed to the contagion that would happen if central government would default to banks . This implies that Greece can restructure all debt that will not affect its economy to a large extent or spread to the economy of its neighbours. As a result, I would expect markets to not react much to this recent revelation as according to the logic I have just outlined central government's agencies' bonds are not the same as central government's bonds. Therefore the restructuring of one should not imply the restructuring of the other. At the same time, according to John Dizard "What the pharmas do [when payment stops or slows] is supply only the basics like penicillin or insulin. At the end they stop doing even that." Now as you'll see from his original post this was said in the context of the Soviet Union, so I don't think that that insight is transferable to Greece, and that we won't see patients dying because the state cannot pay for their medicines. Naked capitalism has some very "inspired" comment on what would happen if this were to happen in Greece... But it seems rather inappropriate to compare Greece to the USSR.