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Lisa Mullins: Richard Parker has just returned from Greece where he's been advising Prime Minister George Papandreou. Parker is an economist at Harvard's Kennedy School of Government. He says the Greek prime minister has no option but to keep cutting.
Richard Parker: It isn't a question of the prime minister gleefully or willingly imposing these cuts on Greek workers, it's quite the contrary. I mean he's done everything he can in negotiations to save Greek workers from these kinds of cuts, but the IMF and the EU Partners, particularly the Germans, are absolutely adamant that they will not provide additional aid without significant cuts in costs.
Mullins: So what is he not able to convince the Greek people of that in terms of the pressure he's under and his ability to be able to get some kind of relief from the international community? I mean it seems like he's the focal point here, he's the pivot point and somehow the message isn't getting down.
Parker: I've been going to Greece for 40 years and I worked with this prime minister's father in the 1980s when he was prime minister, so it's not that I'm unfamiliar.
Mullins: You've basically watched this family from father to son in power...
Parker: Absolutely, I've been there since the early 1970s when he, this current prime minister, was a high school teenager. The issue right now is of a Greek culture that was in many ways profoundly disconnected from broader western European culture for over a thousand years. You have to remember democracy was invented in Greece 2,500 years ago, but the Greek people didn't then re-experience democracy until the 1970s. And so democratic culture is new again in Greece. And this is a country that lived under Ottoman domination in an earlier form of domination for hundreds and hundreds of years. And so there's an almost ferrel distrust of central government, ferrel distrust of power. Part of that is what's leaching out right now into these politics.
Mullins: What do you say, and I know you're reluctant to talk about kind of behind the scenes conversations with the prime minister, Papandreou, but I want you to tell us anyway. How do you guide him in terms of advice you have from, well, not just the international community, but also from your own knowledge of him, his family and the country where it stands economically right now and with all the risks that are involved?
Parker: One is, and this is not his policy, but I've said, look, this whole issue of deep haircuts of the bonds is something that should not be off the table although it has been up until recently. The Germans and the French have put these deep haircuts back on the table.
Mullins: Explain by the way what that means.
Parker: What that means is Greece owes about $350 billion Euros worth of debt, primarily in bonds. And the question is whether they will ever be able to repay the bonds in toto and not cause the Greek economy to plunge into an abyss in the process. The second as I've said to him, look, don't let yourself get trapped into negotiating just one part of this problem. Beyond the problem of Greek bonds is the question of recapitalizing Greek banks and you need a deal that gets both of those done.
Mullins: One of the things I think, Richard Parker, that you are offering as well as a perspective here from the United States, and specifically, you're able to make the link between the Greek crisis and the meltdown on Wall Street that began back in 2008. Tell us what the link is for you.
Parker: Look, I think that we misunderstand when we talk about the Greek crisis or even about the Euro crisis. What you're going through is a crisis that is the aftershock of the original 2008 meltdown on Wall Street. What happened over the last 30 years was not just a question of some kind of change in the way that the Greeks finance their government or the creation of the Euro Zone. It was that American capital, which is the largest base of capital in the world, was systematically deregulated. And power to make decisions that should've been in the hands of regulators were left to the banks themselves. And so what's happened is that you've got American banks being recapitalized by the treasury and by the federal reserve not going back into the business of making loans, but instead taking that recapitalization, turning it over to their trading floors, and for the last two years essentially doing some high volatility trading in commodities and European government bonds. And you cannot allow teenage boys to play with fast cars in an unsupervised environment and not expect crackups.
Mullins: Richard Parker is an economist at Harvard's Kennedy School of Government. He has just returned from Greece where he's been advising Prime Minister George Papandreou.