Anwar says he is “very optimistic” about his party’s chances in next year’s polls.

Anwar has been an international cause celebre because of his 12-year-old struggle with Malaysia’s grey eminence, Mahathir bin Mohammad. During this struggle Anwar has been in and out of jail on charges of corruption and sodomy. He still walks stiffly from a back injury that he says came from a beating he received in jail.

With the recent court judgment, Anwar foresees a wave of political change – if the electoral process is fair. The wiry 75-year-old politician notes that in the last poll, his coalition won half the seats and only lost because of an unusually large number of postal ballots. “You know postal ballots are not electronic,” he smiles and shrugs.

Anwar is in Mumbai to fulfill a promise to attend a conference organised by Rajmohan Gandhi. He was in Malaysia the day of the judgment but flew to India right after. And he flies out Friday to begin preparations at home.

But coming to India gives him an opportunity to get some media play. “I have to use the international media because the Malaysian media is silent about me.” He laughs at the irony of being “interviewed by everyone except the Malays.”

Anwar, like all Asian democracy dissidents, has a mild bone to pick with New Delhi. “India has not done enough to promote itself” as an example of democracy. He cites the greatness of India’s independent judiciary, free press and transparent electoral process.

When he was a minister under Mahathir he promoted seminars on Mahatma Gandhi and other Asian reformers to show up the alternative to Mahathir’s “Asian Values” philosophy — an intellectual rationalisation of one-party rule.

Though Malaysian media downplays him, Anwar says, even the likes of Anna Hazare has had an impact in the country thanks to new media. He would almost certainly like it to have more: the mega-corruption at the highest levels in Kuala Lumpur is going to be an essential part of his campaign reform.

Copyright © 2012 Hindustan Times.

Though Romney squeaked by with a mere eight votes, there is a strong case for saying he is the Republican winner in Iowa. He has clocked a steady 20 percentage points in Iowa since October. He picked up a few more as Gingrich began to fade. Given his past, disastrous record with Iowan voters, Romney did well — especially in the moderate eastern part of the state.

Yes, he drew with religious conservative Rick Santorum. The latter has been awarded a laurel wreath by the media because he beat expectations. But the Iowa caucus has traditionally been fertile ground for the Christian right. Pat Robertson, Mike Huckabee and other preachers swept the state, thanks to Iowa’s northwest Bible corner.

Santorum’s surge was accomplished by cannibalising the support of fellow religious rightist Michelle Bachmann. Santorum didn’t widen his base, he just consolidated it. Which is why, like other Bible thumpers, there is a good chance he will fade in the primaries that follow. Note: he has struggled to top 5% in New Hampshire, the next state to vote. That figure will now rise thanks to Iowa, but not by much.

The libertarian Ron Paul is likely to poll well in New Hampshire. But his support in Iowa was helped by the fact that a caucus allows even non-Republican voters to cast a ballot and a lot of the students, independent and Democratic voters who backed him will find the door closed during the more formal primaries. South Carolina, the third state, will prove difficult.

What is interesting is how the three Republican toppers neatly encapsulate the three wings of the party. Pro-business millionaire Romney is almost a caricature of a Northeast corporate Republican. Santorum carries the cross for the religious right, strongest in the South. Paul is the epitome of a small government, social liberal of the libertarian West. Which is why Gingrich is still in with a chance.

The winner of the primaries will ultimately be the Republican candidate who can best appeal not only to his wing but also to big chunks of the other two. Romney looks the most capable of doing so. His pro-market sentiment gives him a foot in the libertarian door. But he will have to be an extremist on abortion and gay rights to win the Christian right. The problem is that, in practice, on these issues he has been anything but. This remains his key vulnerability: other types of Republicans doubt he’ll be true to his platform once in power. Which leaves the door slightly ajar for someone with a unifying big picture. Which is the type of thing Gingrich, in his heyday, was all about.

For the Republicans, this is a mouth-watering chance. As a person, Obama is almost the perfect president. Unfortunately, the environment around him is toxic. The economy continues to sputter. It’s growing, but jobs aren’t. Obama is admired, but seen as out of sync with his people. He is too liberal at a time when the average US voter is shifting rightward.

A recent Gallup poll asking Americans to rate themselves ideologically pinned the average at 3.3 on a liberal-to-conservative scale of 1 to 5. Obama was rated a left of centre 2.3. His approval rating mimics his vote percentage in a US election. The problem for Obama is that while he still has a good chance of winning, his chances are now dependent on factors largely out of his control. A Euro-meltdown would probably be fatal. As would a major terrorist attack. It’s all that close right now.

Copyright © 2012 Hindustan Times.

The popular view is of India and Iran as bosom buddies, close friends who help each other diplomatically and economically. This view expounds the “civilisational” ties between the two countries and believes that if only we could get the Americans and other obstructionist types off our back, there would be no stopping Indo-Iranian ties. This is the Taj Mahal school, a vision of an Indo-Persian construction of ethereal beauty.

The view from inside New Delhi, on the other hand, while hardly hostile to Iran, knows from experience that Iran is a difficult, very self-interested nation who has no problems playing hard ball or turning on India if it could benefit by doing so. In other words, a good old player of realpolitik. Which is fine; that’s the norm in the world, anyway. They know there is no “special relationship” between India and Iran, just one based on a few shared (and many diverging) interests.

Iran generally finds common cause with India against Pakistan. It has tried to woo Islamabad in the past, but without success. But it joined India and Russia in backing the Northern Alliance against the Taliban. It helped keep Kashmir off the agenda of the Organisation of the Islamic Conference and other such fora.

But Iran has also supported resolutions in the United Nations demanding all nuclear states sign the Nuclear Nonproliferation Treaty. The target was Israel, but when India protested, Tehran basically said, “Tough.” Tehran has close ties with China. And the biggest divergence has been over Iran’s atomic ambitions; India has pointed out that an overtly nuclear weaponised Iran would lead Pakistan and Saudi Arabia to implement their tacit oil-for-nukes agreement and form an extremely dangerous axis. Iran has listened and said, “Tough.”

The economic relationship is actually quite threadbare. India doesn’t import a drop of natural gas from Iran. It does import oil, but much of that is fungible — we can get it from somewhere else. India’s oil imports from Iran peaked in 2009-10 and have fallen precipitously since then. I suspect Indian imports will fall to as little as 200,000 barrels per day by summer, nearly a fifth of what was being shipped in 2009-10.

India plays a much more crucial role than importer in the Indo-Iranian petroleum relationship: that of refiner. Before the Reliance Corporation pulled the plug last year, India refined Iranian crude and sent it back to Iran or on to other countries. Iran is actually more desperate to lose India than the other way around because there are only three or four countries who can refine its sour crude.

So why is India struggling to ensure relations with Iran aren’t deep-sixed? Partly because it sees the utility of Iran rising as the United States moves towards withdrawal from Afghanistan. Partly because it doesn’t want to be seen as following the US’s unilateral moves. But a lot of its motives lie in a belief that, whatever happens, Iran is heading to become the dominant power of the Persian Gulf in a decade or so. By then the US will not be the country most affected by disrupted oil and gas supplies through the Straits of Hormuz — it will be India and China. So keeping the Persians happy will be essential.

That hardly means subservience. Iran is a cursed nation; its value structure and governmental system is brutal, regressive and terroristic — it does not provide a model for India in any way whatsoever. Indian diplomats who have to deal with Iran describe a country who sees dishonesty as acceptable at the negotiating table and which will sign deals one day and then unilaterally rip them up the next.

India owes Iran no favours and vice versa. But they have common interests, and working together has led to many successes. The most constructive behaviour happens when there are no illusions that India and Iran are brethren.

Copyright © 2012 Hindustan Times.

And it is proving just a bit harder than expected. Evolution is not a beach party.

India has sought to bring stability to the Maldives by introducing democracy and ensuring no one else interferes in its internal affairs. But democracy is more than just about holding elections. It is also about developing norms, like the concept of a loyal opposition or an independent judiciary, which often take many years to develop and find social acceptance.

Hence New Delhi’s gentle interventions over the past few years to get the recently deposed president, Mohammed Nasheed, to try and build a stable parliamentary majority and, more recently, to form a national unity government (and, when that failed, New Delhi had to persuade the new regime in Male not to arrest Nasheed).

India doesn’t have too much to worry about when it comes to Chinese or Pakistani influence, but it does have some concerns about Islamicist influences gaining traction when the mainstream polity is at war with itself.

With the Maldives, India is attempting to show the world that it can manage a friendly but problem-plagued nation on its periphery. And, in a slightly broader context, that it can manage a strategic policy in which one element has come unstuck.

The Maldives is the pillar of India’s oceanic policy. Securing the Indian Ocean requires, among other things, for India to have a strong say in Male, whose territorial claims cover a huge sprawl of Indian Ocean between Sri Lanka and Madagascar.

Last year, the Maldives had requested that India and Sri Lanka join them in creating a new maritime security structure for the mid-ocean area. As one senior Indian official had noted earlier this year, “We are working on proposals together and hope that our three countries will form the core of what may emerge on maritime security.”

It was also signing a framework agreement to allow them to be the latest South Asian country to tie themselves to the Indian economy.

Male, in other words, has been a cakewalk for India to win influence. But it is a test for India to also play therapist, financier, military guarantor and political mentor to a country vital to its national interests.

Copyright © 2012 Hindustan Times.

Someone should measure the spike in outsourcing rhetoric that occurs when electoral campaigns take place. And the rhetoric, on both sides, is largely hot air suffused with bombast.

Consider these supposed corporate tax breaks for outsourcers. I can remember John Kerry raising them, Bill and Hillary Clinton raising them, and Obama raising them at each and every presidential election campaign over the past decade or so. Why did nothing happen, even when the Democrats controlled the Congress? Because there are no such tax breaks. The only thing that anyone can find is differential corporate tax rates across countries. These have no relationship to outsourcing, they’re just different tax structures in different countries. Ireland charges a 12 per cent corporate tax to attract investment. It doesn’t get much outsourcing because its wages are high. India charges a corporate tax rate that is about the same, if not higher, than the US, but gets plenty of outsourcing because its wages are low. Notice the key determinant here is not tax rates, but wages — which are beyond Obama’s power to control.

Mind you, India lecturing on protectionism is a bit rich, given the trade barriers it maintains against many imports.

India’s outsourcing sector is, in any case, changing its spots to reflect a new business environment. As reported by the New York Times, the Philippines does more call centering for North America than India does. Indian wages have risen and the pool of English proficient workers has shrunk.

Lesser known is that Indian firms have shifted outsourcing operations to the US, as wages in small town America are now competitive with metropolitan India. But there are problems: a Tata Consultancy Services representative once described how Tata, India’s largest software firm, had tried to hire Americans in a depressed part of the Northeast.  The applicants snaked around the block, but the number who could qualify for even a basic call centre job was so low that the company could not fill the vacancies.

What always strikes me as ironic is that so many of the biggest call business process outsourcing firms in India are either US-owned or US-headquartered. Thus Genpact, IBM Daksh, WNS Global and EXL Service Holdings are normally in the top ten business process outsourcing firms lists each year, but are either registered in the US or owned by American investors.

So I’ll wince a bit through this year as the political rhetoric spills over and steadily diverges from the economic reality.

Copyright © 2012 Hindustan Times.

Thai diplomats expressed surprise and pleasure. After all, India has had much closer and deeper ties with Singapore, which has yet to get the same invitation. I would argue this is all part of a broader policy of seeking to build a network of ties with this specific region, especially with those Southeast Asian countries whose coastlines are touched by the Indian Ocean. These have been somewhat neglected. In some cases, notably Malaysia, the relationship was less than happy during the Cold War. Thailand and Indonesia were largely ignored, spoken of as civilisational outposts of India and nothing much else.

This was a direct legacy of Jawaharlal Nehru, who spurned requests by Singapore to take over its security in the 1960s but then was furious when these countries then formed the Association of Southeast Asian Nations and became treaty allies of the United States. They were derided in Delhi as tinsel cultures. The contempt became bilateral when the Southeast Asian countries perfected the Asian tiger economic model and soared past India in the development game.

Then in 1991 the game changed. Thanks in particular to Singapore, India re-entered the regional equation. It now has decent military ties with Singapore and Indonesia. It even holds an annual joint naval patrol down to the Andamans with the Thai navy. The economic ties began to grow, institutionalised through bilateral free trade agreements and the rapid expansion of investments by the Indian private sector.

The China factor has begun to creep into the picture in the past few years as a number of factors began to converge: the deterioration in Sino-Indian ties, concerns about the US commitment to Asia and the Indian Ocean, and the massive Chinese economic presence in the region.

Beijing could scoff at the idea of India matching them for influence. Chinese trade and investment figures with Southeast Asia dwarf those of India by a factor of four or five. However, the growth of Indian trade and investment is now higher than China’s, so the gap may yet be at least narrowed in the coming years.

But India’s strategy has not been to match China in the economic sphere — which would be impossible given the disparity in coffer power and the fact that Indian firms could care two hoots about strategic directives from their government. The game has been to develop deep partnerships in which the purpose is to ensure the nations involved will make it a point to consult India about any major strategic decisions and be cognizant of New Delhi’s interests in whatever they do on the macro level.

The Southeast Asian countries, for their part, are taking a greater interest in India for a host of reasons. Some groups like the Indonesian military are Sinophobic. Malaysia is worried that its economic model is not working — its labour costs are too high to attract foreign manufacturers any more, but its local entrepreneurial class is stunted thanks to its ethnic reservation system. Thailand and others are finding out that their elite political structures are struggling to handle greater demands for inclusion — the Shinawatra saga being such a tale and the remarkably hopeful signs in Myanmar being another. Again, looking to Indian democracy makes some sense, though one shouldn’t exaggerate the respect with which India’s polity is held by its neighbours. Many admit it seems to hold the country together but can’t quite pinpoint how. Then there are those who worry at the figures showing that the US navy will begin shrinking rapidly in the coming decades, which will be felt the most in the Indian Ocean. India, with 43 warships on order or being built right now, and a hundred more expected to be inducted later on, is an obvious place to look for some security in the future.

India is broadly seen as non-threatening, unlike China, which has to work hard to earn that image. One of the lesser known influences of India is religion. A surprising number of Southeast Asian elite members come to India to seek enlightenment or religious fixes. And this has political consequences. Why aren’t hardliners like Maung Aye trying to stop the present political reforms in Myanmar? Because he’s in religious rapture, spending his time in Buddhist meditation. Indian officials like to think they helped this along by fulfilling the many requests by Myanmarese generals to make pilgrimages to holy sites in India. “They go to China for weapons and India for salvation,” is a standard joke in the Indian foreign ministry.

I take some historical satisfaction in Southeast Asian countries exploring the possibility that the new India has something to offer them, politically economically or theologically. While some Indian scholars treat the influence of ancient India on Southeast Asia as some sort of evidence of a Greater India, the truth is more likely that indigenous rising Southeast Asian cultures found it useful to legitimize their rulers and consolidate their nationhood with Indian metaphysics. One gets a sense that something similar is happening again between India and its eastern neighbours.

Copyright © 2012 Hindustan Times.

China currently accounts for less than 1% of the $2.3 trillion of foreign direct investment in the United States. Inflows from China are poised to increase in coming years, but it’s not clear yet whether this will happen at a pace commensurate with the amount of capital Chinese companies have available to export and their commercial motives for doing so. In light of a few controversies and politicized deals, Chinese officials regularly blame political resistance in the U.S. for the low level of Chinese investment. But blaming those earlier ructions misses a key point. China itself needs to do a better job encouraging outbound investment to, and preparing its firms for doing business in, mature market economies.

One problem is that potential Chinese investors regularly misjudge the political landscape in the U.S. A few high-profile controversies obscure the number of investments that go without a hitch. Since 2009 Chinese investors have spent more than $12 billion on factories and other direct investment projects, and are now present in 38 states. Only a small number of investments are subject to national security review, and despite heated rhetoric, most Chinese investments have been approved, among them deals in oil and gas extraction, power generation and aviation.

Chinese officials should remind businesses that investments in the U.S. succeed if the companies properly manage the process. As it is, officials themselves are too likely to focus only on the failures.

That change in attitude needs to be accompanied by a wholesale change in the nitty-gritty process for outward investment. Chinese companies still face capital controls and a lengthy and burdensome process for overseas ventures. The approval process for outbound investment involves numerous government entities with different interests and preferences, including the Ministry of Commerce, the National Development and Reform Commission, the State Administration of Foreign Exchange and industry-specific regulators.

Chinese investors often get tangled up in bureaucratic turf wars, which puts them at a great disadvantage in competitive bidding processes for assets in developed economies. And often enough deals fail because domestic regulators veto them in the name of domestic industrial policy, such as in the case of Tengzhong’s proposed acquisition of U.S. auto brand Hummer in 2010 or Bank of China’s stake in French private bank Rothschild in 2009. Global success will require loosening the industrial-policy grip on firms and giving them greater scope to experiment abroad.

Further domestic policy reforms also would help greater outbound investment. Stricter corporate governance rules and convergence with global business norms would make it much easier for firms to expand to developed economies. Not only would this kind of corporate transparency allay lingering political concerns about such investment in recipient markets, but it would also equip Chinese companies to better compete with well-run foreign companies.

Distinct features of China’s legal system also are big impediments for its firms to operate across borders and comply with regulations abroad. A glaring example is the state secret law which prohibits auditors from giving out certain financial information to overseas regulators. By accelerating domestic reforms in relevant areas and making its institutions more compatible with mature economies, China can lay the foundation for the future global success of its multinationals.

Beijing also needs to consider the kind of firm doing the overseas investing. State-owned enterprises have traditionally dominated overseas investment, but private firms will play a more important role in flows to developed economies – they already account for more than 70% of all Chinese foreign-direct-investment deals in the U.S. But these firms are greatly disadvantaged in China’s current system. For both domestic and overseas investment, state-owned enterprises enjoy greater political support, better access to capital and faster approval of investments.

Finally, the time is ripe for China to play a more active role in keeping the global investment environment open. As the U.S. and other developed economies receive greater investment from China, pressure for reciprocal treatment will increase. China must be prepared to further open up its own economy and level the playing field for foreign firms. China’s new national security screening framework, which includes “economic security” and “social stability” as reasons to reject foreign investment into China, is a step into the wrong direction.

Chinese outbound investment will be as beneficial for China’s own economy as it will be for the recipients of that capital—going global is how Chinese companies will learn how to compete with foreign companies, and many of those lessons will be applicable at home in China, too. Beijing can’t afford to give up on the U.S. as an investment destination, and it can’t afford not to implement the domestic reforms that would bolster that investment.

© Wall Street Journal

Europe’s new fiscal compact is seen by some as the death of Keynesian government spending. This column argues that such analysis is simply wrong. It says that there is still room for government spending in extreme situations, but that there are now more safeguards to maintain stability, reduce contagion, and placate German taxpayers.

Sanctions Hit Food Imports First

Since the passage of US legislation sanctioning the Central Bank of Iran and decision by the EU to ban imports of Iranian crude, attention has been focused on the country’s oil sales and the impact increased Western pressure will have on Tehran’s export revenue. But so far it looks like the most significant trade disruptions are occurring on the import side instead. In the past week Indian firms have held up wheat and rice shipments and Singapore-based traders have stopped selling Malaysian and Indonesian palm oil out of fear they won’t get paid.  

In theory, this shouldn’t be happening. The National Defense Authorization Act signed into law by President Obama on December 31^st explicitly excludes food products (as well as medicine and medical devices) from sanctions. So international agricultural producers should be free to sell to Iran without risk. But given the fragility of the Iranian financial system and the stigma surrounding trade with Iran, many foreign vendors are deciding it’s just not worth it. Because while Tehran is willing to continue selling crude on credit while its customers sort through sanctions-related payment problems, the country’s food suppliers aren’t so sure the small and medium sized Iranian companies they deal with will be able to come through.  

On top of global food producers’ hesitancy to sell, Iranian consumers’ ability to buy has taken a hit as well. In the face of increased international financial isolation, nervous Iranian households are converting their savings from rial to dollars in the country’s informal foreign exchange markets. This has caused the currency to depreciate by 40% over the past two months, making imported food 40% more expensive (Figure 2). Financial sanctions have limited the Central Bank of Iran’s ability to intervene and keep the market exchange rate in line with the official target, so instead the government has had to raise interest rates and attempt to ban unofficial foreign exchange transactions.

A Political Challenge for Tehran

Coming less than a month before the March 2^nd parliamentary elections, this is a troublesome development for Iranian leadership. While not quite as dependent on foreign food as many of their neighbors in the Middle East, Iranians still depend on imports for more than a third of the calories they consume each day. Iran imports more than half the rice and maize it consumes, as well as soy beans and other oil crops or oil products (Figure 2). Most of the maize and soy is used as animal feed, but impacts the price and availability of meat and dairy. Iran is also dependent on foreign barley, though this accounts for a relatively low share of overall caloric intake. Imported wheat accounts for less than 10% of domestic demand. But since half the calories the average Iranian consumes each day comes from wheat even this level of import dependence could be a liability.    

And a Difficult Problem to Solve

In addition to accounting for a large share of domestic demand, Iranian food imports account for meaningful chunk of internationally traded food supply. Iran is the world’s fifth largest importer of wheat and rice, sixth largest importer of maize, makes the top 10 in barley and the top 20 in oil crops and oil products (Table 1). So we’re talking billions of dollars in agricultural trade that needs to get settled each year – not an easy task with increasingly stringent international financial sanctions.

India has reportedly offered to utilize the new rupee arrangement with Iran (see Iran’s Oil for Rupee Program, February 6, 2012) to barter oil imports for wheat, tea and other agricultural exports. Expect to see a significant increase in Indian food sales in the months ahead as the New Delhi looks to maximize exports to Iran under the rupee arrangement and Tehran tries to keep agricultural imports flowing.

But among Iran’s major oil customers, India is the only significant exporter of the cereals, oil crops and oil products Iran needs (Figure 3). And even India doesn’t sell enough globally to meet Iranian demand (or come close to balance out what Indian refineries pay Tehran for oil). So unless India starts transshipping food products from other producers or Iran’s other large food suppliers start buying Iranian crude, “oil-for-food” barter is going to have limited effect. While there is some prospect for both, they will only partially mitigate the payment problems Iranian food importers now face. And foreign suppliers will likely charge a premium for their troubles, which will further inflate domestic food prices already skyrocketing thanks to sanctions-induced rial depreciation.

With Washington and Brussels hoping to shake up Iranian politics by targeting the country’s oil exports, the unintended impact on Iranian food supply appears to be having a greater impact. It just might not play out in the way Western policymakers expect.  

Such an escrow account would give Greek bondholders seniority over the spending demands of Greek residents and taxpayers, when it comes to the use of the bailout money provided Greece by the so-called troika of the IMF, the European Central Bank (ECB), and its partners in the euro area. Elevating creditors in this fashion would be politically controversial, especially in Greece, which would be confronting a deep multiyear recession compounded by a significant reduction in fiscal sovereignty for Athens. Unsurprisingly, the likely next Greek Prime Minister Antonis Samaras has a problem with it! The euro area, on the other hand, is likely to note that it is merely exercising its interest in protecting its taxpayers’ money, which has been sent to assist Greece.

In addition, Chancellor Merkel’s intent, obvious though not articulated, is to sequester funds for interest payments only on the new bonds that private bondholders get in return for taking a 75 percent net present value (NPV) write-down on their existing holdings. That deal leaves nothing for the creditors refusing to participate in the debt restructuring, known as the private sector involvement, or PSI. Thus an escrow account offers a powerful incentive to secure a higher participation among creditors in the PSI bond swap. Bondholders would in essence receive a de facto (albeit smaller) claim in the euro area in return for their Greek debt, as the new escrow-guaranteed bonds would be the functional equivalent of a eurobond. An escrow account for Greece’s new long-term swapped bonds (which will have a maturity of 30 or more years) also means that finding the funds to pay back the principal will literally be the problem of future generations of euro area leaders.

To guarantee this outcome—required if euro area leaders want to be faithful to their promise of ending the experiment of PSI, the euro area must ensure that the escrow account is big enough to guarantee that no further sovereign defaults would happen against the holders of the new bonds.

Beyond these considerations, an escrow account would have very important implications for future brinkmanship between Greece and the troika over Greece’s compliance on reform. Until now, successive Greek governments have argued that the troika has no choice but to pay the next loan tranche, knowing that the associated contagion from a sudden unstructured Greek default would be devastating for the entire euro area. Accordingly, Athens has been able to get away with its deficient program implementation. Note that for Greece, missing a deficit target because of adverse economic conditions is more acceptable than a failure to deliver structural reform because of politics.)

With an escrow account this brinkmanship calculus changes completely. Faced with Greek intransigence on reform, the euro area will be able to use the escrow account to keep international bondholders happy and eliminate the threat of contagion from a second Greek default, while selectively shutting off funds for the running of a Greek government. Athens would thereby lose its principal contagion leverage against the euro area and also lose its ability compel the troika to continue to disburse cash.

An escrow account for bondholders, combined with a likely enhanced euro area/IMF financial firewall against contagion, to become operational by July, would disarm the Greek government in future games of chicken with the euro area. By lifting the threat of potential turmoil throughout the region caused by a Greek domestic default and subsequent meltdown, an escrow would really put the screws on Athens.

© Peterson Institute for International Economics