Tag Archives: restructure

Debt restructuring: a proposed principle – Mainly Macro

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With Greece under Syriza about to enter negotiations with the Troika, there has been much discussion of what might happen, and what should happen. This post is in the ‘should’ category, writes Professor Simon Wren-Lewis in Mainly Macro.

In the past I have argued that the Troika should welcome the opportunity to put right earlier mistakes. There should be a large amount of guilt, or at least regret, on their side… to show that I’m not living in a dreamland, read this FT piece by Reza Moghadam, the former head of the European Division of the IMF.

In reality debt restructuring is a bargaining game, but I want to suggest a general principle that any agreement should hold to. That principle is that there should be no significant increase in unemployment above its natural rate (let’s call this excess unemployment) as a direct result of having to pay interest on any government debt.

This is why the Troika should feel guilty, because by not allowing Greece to default on all its debt back in 2010 it helped create a situation where over half young people in Greece are unemployed… As I have argued in the past in the context of Latvia, the efficient way to restore competitiveness is to have small but persistent excess unemployment: a ‘short sharp shock’ is much more costly. The Troika imposed much too much austerity on Greece in a futile effort to avoid full and early default.

The process transferred the ownership of the remaining Greek government debt from the private sector to the public sector – other Eurozone governments and the IMF. The transfer to other European governments was wrong in two respects. First, it was another example of governments bailing out their own banks and other financial institutions with no costs to those institutions. Second, it made any subsequent restructuring of Greek debt much more difficult politically. If there had been full and immediate default there would have still been need for additional lending to Greece to give them time to adjust their public finances and avoid a large increase in unemployment, but that is what the IMF is for. If the Troika had not been involved, the IMF may well have gone for early and complete default.

So much for the past and guilt. What about what should happen now? The priority is for Greece to reduce unemployment as quickly as possible.

Read the rest of this article on Mainly Macro.

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‘Cheques like confetti’ as ‘redundant’ NHS managers are rehired at cost

Bad budgeting: The NHS has spent far more money firing and re-hiring pen-pushers than it is willing to give in increased pay to nurses. In what twisted system is that fair? [Image: BBC]

Bad budgeting: The NHS has spent far more money firing and re-hiring pen-pushers than it is willing to give in increased pay to nurses. In what twisted system is that fair? [Image: BBC]

The Coalition’s ‘reformed’ NHS has been spending a fortune on re-hiring managers it had previously given large redundancy payments – while Jeremy Hunt has been telling us there is no money to give nurses a pay rise.

Tory health minister Dan Poulter (the Health Secretary himself was nowhere to be heard) had to admit that 3,950 staff whose jobs were made redundant after May 2010 have since been hired back, in response to a Parliamentary question from Labour’s Julie Hilling. The figures cover a period up to November last year, so the true number may be even more.

These are managers who received large payoffs as part of the £3-4 billion ‘restructuring’ of the National Health Service that began before Andrew Lansley’s Health and Social Care Act was passed by Parliament.

The aim, as revealed in Nicholas Timmins’ Never Again: The Story of the Health and Social Care Act 2012, was defined by Oliver Letwin as “encouraging staff to quit public sector employment while selling their services back through social enterprise”. In other words, after losing their jobs in the ‘old’ NHS – and receiving large redundancy settlements for the inconvenience – managers were to be re-hired at high cost to the ‘new’ NHS.

Shadow Health Secretary Andy Burnham had this to say: “It’s clear that people who received payoffs are now coming back to the NHS in ever greater numbers. We need to know whether the Prime Minister has honoured his promise to recover redundancy payments from people who have been re-employed by his new organisations.

“The sickening scale of the waste caused by Cameron’s reorganisation is finally becoming clear. It will infuriate people who can’t get a GP appointment or nurses who are struggling to pay the bills.”

He pointed out: “It will be utterly galling for nurses who’ve just had a pay cut from David Cameron to see he’s been handing out cheques like confetti to people who have now been rehired.

“On his watch, we have seen payoffs for managers and pay cuts for nurses.”

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