Dani Rodrik's weblog

An article in Dutch

This is an article in Dutch about the Globalization Paradox and my views on the eurozone crisis. The picture is horrible, but I am told the writeup is pretty good.

Oh, where have all the competent forgers gone?

Pity the mafia that is staging what is probably the most significant political trial in modern Turkey’s history – a show trial in which more than three hundred Turkish military officers stand accused of plotting a military coup back in 2003.  Since early 2010, the mafia has produced three different batches of evidence to put the defendants behind bars.  Alas, each batch contains such obvious signs of forgery that they seem rather the handiwork of a bunch of crooked Keystone Kops.  Naturally the only thing that keeps the trial going is the heavy support of the AKP government and its Gulenist allies. 

First, there was a trunk full of documents delivered to a newspaper reporter.  The documents, digital Word files on CDs, described in gory detail preparations for a military coup.  Within days, it became clear that these files had just a small problem: even though they were made to look like they dated from 2003, they referred to future events or entities that did not yet exist. By now, hundreds of such anachronisms and other inconsistencies have been identified in this first batch, leaving no doubt that the documents are the product of a much later hand.

Then, with great fanfare a second batch of digital documents was unearthed from a naval base.  One might have thought the forgers would have become better at their craft with experience.  Apparently not.  The new documents not only repeated the initial mistakes, they compounded them.  Officers were shown on a ship not yet commissioned, on duty in an outfit not yet created, or in meetings they supposedly attended while hundreds of miles away.    

So when a third find was reported, this one a flash disk supposedly found in a retired air force officer’s home, I thought for sure that it wouldn’t contain such inconsistencies and anachronisms .  Indeed, this time forgers tried to be smart and cover for their earlier blunders.  They inserted in the new documents statements to the effect that the coup plotters had made conscious mistakes in their documents to cover their tracks.  (Of course, it was left unclear how such “mistakes” could account for 2009 information finding its way into a 2003 document – but no matter.)   

But incredibly they again slipped up.  In fact, this third find contains some of the worst howlers to date.  One document in which plotters allegedly lay out their desired changes in legislation contains an annex in which the future amended form of the law is cited, down to its precise number and date of adoption two years later! A document supposedly prepared in 2007 contains the scan of a newspaper article from 2009.    

Is it so difficult to find competent forgers?

This would all be funny if hundreds of people were not in jail on the basis of such documents, and if another indictment had not just been accepted by a Turkish court – based on the third batch of fabricated evidence. 

What is equally scandalous is the almost complete lack of coverage in the Turkish media of the facts of this case.  “Independent” media, intimidated by the government, shies away from discussing the problems with the evidence and the evident manipulation by the police and prosecutors.  Pro-government media, including most notably the Gulenist media, act as the propaganda arm of the prosecutors and systematically distort the facts.

And what do the supporters of the prosecution say when confronted with the evidence of fabrication? A common response is that the anachronisms are due to the “updating” by the coup plotters of the original documents.  The trouble with this argument is that the documents show no sign of updating – except for the occasional anachronism.  The names on them belong to officers on duty back in 2003, long since retired.  The dates – both on the files themselves and in the metadata – are also from the earlier years.  It is evident that the true authors of these documents altered the system clock of the computers on which they worked to make it look like they were prepared and last saved in 2003.

At this point, the defenders of the case lose any pretence of coherence.  They say it is up to the defendants to explain why such inconsistencies and anachronisms exist.  I am not kidding.  Here is Bülent Keneş, the editor the Gulenist daily Today’s Zaman.  So if the prosecutors cannot prove their case, the defendants must to do it for them.

Did you say Kafka?  No, this is all too absurd even by that standard.

Europe's next nightmare

As if the economic ramifications of a full-blown Greek default were not terrifying enough, the political consequences could be far worse. A chaotic eurozone breakup would cause irreparable damage to the European integration project, the central pillar of Europe’s political stability since World War II. It would destabilize not only the highly-indebted European periphery, but also core countries like France and Germany, which have been the architects of that project.

Read the rest here.

Why is the bankruptcy of the Greek government different from the bankruptcy of California?

The European Union, and the Eurozone in particular, has impressive institutional achievements to its name.  We have a European Parliament, European Commission, European Court of Justice, a set of common regulations that exceeded 100,000 last time I checked (acquis communautaire), and of course the European Central Bank.  These institutions are meant to underpin its unified market. 

Yet we have now become all too aware of how incomplete these institutional arrangements are.  To see the point, it is instructive to compare what is going on with Greece today with how a truly unified nation, such as the United States, deals with crisis in one of its constituent units, say California. 

California shares a common currency with the rest of the U.S., just as Greece (or Ireland or Spain) does with the Eurozone.  But when the state government in California goes bust:

• Californians automatically get welfare checks and other transfer payments from Washington.
• Californian borrowers do not get shut out of credit markets and those with healthy balance sheets can borrow from the rest of the nation.  This is because there is no “California risk” the way there is Greek sovereign risk; borrowers in California operate under a federal legal regime and the state of California cannot force them to hold California paper or prevent them from repaying their debts to non-Californians. 
• The Federal Reserve stands ready to act as a lender of last resort to any Californian bank.  (Why? Well, because it is one country after all…)
• California has representatives and senators in Washington, D.C., who can push for remedies for California’s economic troubles through political channels (e.g., fiscal spending, federal assistance, debt relief)
• Californians can easily move and seek jobs elsewhere in the U.S.

The flip side of these benefits is that there is no expectation that Washington, DC must bail the state government.   

A subtle point here is that Washington’s “no bail out” commitment is rendered credible by the direct support residents of California get from Washington, DC.  This support limits the economic/political fallout in California.  By contrast, the bankruptcy of the Greek government condemns the entire Greek financial system and sends the entire Greek economy down the drain.     

In other words, because the state of California has no “sovereign powers,” it is effectively just like any other moderately large borrower.  The consequences of its bankruptcy are no more or less serious. 

The political quid pro quo in the U.S. is this.  California has given up its sovereignty and has accepted the reach of federal laws and regulations.  In return, Californians are part of the governance structure in Washington.  Neither of these is true to quite the same extent in the Eurozone. 

Consequently, a crisis within the Eurozone is more costly both in economic and political terms.  We get ad hoc arrangements to extend credit (rather than automaticity), protracted financial crises and deeper economic recession, and mutual resentment on both sides.  Greeks complain about “German selfishness” while Germans resent the creeping “transfer union.”  Ultimately, the survival of the Eurozone itself is threatened.

In short, the euro’s institutional incompleteness has left the Eurozone badly exposed to the crisis.  Euro-skeptics say “we told you so.”  Others, like me, will argue that it was the EU’s misfortune to have been caught halfway in its institutional integration process by a financial crisis that was not its own doing.

But that is all water under the bridge now.  The main lesson from the debacle is that economic union requires political union.  The EU needs either more political union if it wants to keep its single market, or less economic union if it is unable to achieve political integration. 

At this stage, the former path looks by far the less likely.  If it has to come to it, the more orderly and premeditated the coming break-up of the Eurozone, the better it will be.