As Greece’s debt crisis drags on, with little sign of fresh compromise between Athens and its European Union creditors, one former player in the long-running negotiations says both sides could use a little outside perspective.
Charles Dallara, who helped forge Greece’s 2012 debt restructuring as then-managing director of the Institute of International Finance, says the Greek government and its EU counterparts need to stop the blame game and focus on “pragmatic solutions” to the country’s debt woes.
“If I look at the Greek situation, the tendency of many northern Europeans to moralize about the Greeks has been a real problem in finding pragmatic solutions,” Dallara tells Institutional Investor in an interview in Tokyo, where he was visiting. “It was tempting in the early days of the Latin American debt crisis to do the same — to look at Mexico and Brazil and Argentina and look down one’s nose and say, ‘You borrowed irresponsibly and you have not invested wisely, and if your economy is in trouble, that is due to your incompetence.’”
Dallara has seen plenty of crises, from his days as a Treasury official in the administrations of Ronald Reagan and George H.W. Bush to his tenure as head of the IIF, a lobbying organization of major international banks, from 1993 to 2013. Sometimes it seems that these crises are never-ending and that the world never learns from them, but Dallara says lessons can be learned, given greater flexibility on the part of all parties concerned, a sentiment expressed by Treasury secretary Jack Lew at the Group of Seven Finance ministers meeting in Dresden, Germany, in late May. The most important lesson is to adopt a wider perspective, Dallara says.
“Those involved in trying to resolve crises have to recognize that they represent global interests and not just parochial interests,” he contends. “This is something that is not easy to do, but Germans don’t represent just Germany; they represent all of Europe.”
Similarly, Greece’s debt problems have ramifications that extend beyond the country’s borders, and those of the EU, Dallara says.
“There are very few local financial crises now,” he says. “Global markets and global economies are so interconnected, and with communications and social media being what they are, the capacity of markets to transmit anxiety is such that the well-being of a poor worker in the middle of Sichuan province of China may be affected by how I may handle Greek debt restructuring. That global awareness is something that I think we all have to remind ourselves of.”
These days, Dallara exercises his own global awareness on behalf of Partners Group Holding, a Swiss private investment group with €37 billion ($42 billion) in assets under management, where he serves as group vice chairman and chairman of its Americas division. His views on the state of global markets will sound familiar to many investors concerned about valuations and the impact of aggressive monetary easing by central banks.
“I follow valuations in private markets, and I can tell you that in large-cap markets and leveraged buyouts, there’s a growing disconnect between fundamentals and earnings,” he says. “Asset inflation has leaked into almost every corner of global markets. I worry that the adjustment process that connects fundamentals and asset prices is going to be painful and costly and disruptive.”
Dallara ignores his own advice briefly to point a finger of blame at the Federal Reserve Board and other monetary authorities.
“Central banks developed so much energy and focus in the 1960s and ’70s and ’80s on fighting inflation that I find it ironic, and to a degree sad, that they have now seemingly lost sight of the realities of asset inflation,” he contends. “It may not be goods-and-services inflation, but it is inflation nonetheless, and it is inflation of the worst kind because it is separating asset values from their fundamentals — and we know that that can only be sustained for so long.”
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