Deals are Good!

After endless, and sometimes seemingly hopeless, negotiations, diplomats have produced two new multi-national deals:  one to keep Greece in the Euro, and the second on nuclear development in Iran.

Despite enormous criticism and hand-wringing, both deals are good news for the  world.  The deal on Greece was vital.  The European Union remains the best hope for showing the world that nationalism can be overcome and that diverse peoples can coordinate their political and economic policies.  If there is ever to be global integration and government, the EU has to lead the way.  So showing that even when facing a crisis the EU can function to preserve unity is enormously valuable in itself.  What lesson would have been sent to Ukraine or Moldova, or to Turkey or even China, about dealing with the EU if the Union would turn on one of its own and expel them for failing to live up to certain economic standards?   The EU has always moved forward by accepting countries that did NOT meet its desired standards for democracy or economic stability (going back to Spain and Portugal) and urging them forward and helping them reach higher.

Moreover, as the US government found with Lehman Brothers, the consequences of allowing even a small piece of a deeply interconnected financial structure to fail can be enormous and much greater than expected.  Who knows for sure how the global financial system would have fared if Greek bankruptcy also brought down several German banks or caused a run on emerging market assets?  Better to preserve the system than risk a sudden change that, even if small, could be the proverbial straw that break’s the camel’s back.

Will the deal be ideal?  Of course not.  A sensible deal would include explicit debt relief and a plan to return Greece to economic growth that would restore prosperity.  It would include — as the current deal does to some degree — external oversight of Greek’s taxing and spending, which have been riddled with corruption, fraud, and waste.  And it would include continued engagement and flexibility to ensure a path to financial health is maintained.  In short it would work very much like US Chapter 11 bankruptcy plans, whose goal is not to punish companies that run into financial trouble and cannot meet their obligations, but to make the best use of remaining assets while lifting the burden of unpayable debts, and putting the company on a new path to growth.

The actual deal on Greece is not quite that sound.  It has no explicit debt relief (although creditors say they don’t expect to be fully repaid); the external oversight is concentrated on sales of states assets; and there is still a tendency to want to punish Greece for its financial sins, rather than prioritizing easing the suffering of the Greek people.  It will be up to the Greek leaders and European leaders to try to nudge the deal in this direction as it is implemented.  The U.S can play a role here, educating Europeans about its very successful and flexible bankruptcy programs, explaining why such programs are a good idea and how they work, and suggesting them as an alternative model to “punitive” actions for Greece.

The Iran nuclear deal is also good for the world, and even — despite the rhetoric of Israeli PM Benyamin Netanyahu — good for Israel.  Today, the world has an angry, isolated, and very nearly nuclear-armed Iran.  That Iran has been dangerous and untrustworthy and therefore was put under strong sanctions by the UN and US.  That is not a situation that can be maintained indefinitely.  Under the status quo, Iran will eventually get nuclear capabilities, and will be ever more angry and isolated when it does.  That is NOT a good outcome for Israel or the region or the world.

Under the new deal — although not all details are released yet — Iran will become less isolated as sanctions are ended.  In return, Iran will be forced to earn trust by limiting its stockpile of nuclear bomb-capable materials and opening its nuclear program to international inspections. The deal will change the  status quo by making Iran less isolated AND less likely to achieve nuclear weapons capability within the next decade.  That is a better outcome than the status quo.

Of course, the deal could still go badly wrong.  One of the first things needed immediately afterwards is to start negotiating Iran/Saudi cooperation against the Islamic State.  The Iran-Saudi enmity must be managed and reduced to limit hostilities in the region.  If the Shi’a-Sunni split continues to polarize the region, Iran will want to accelerate its conventional arms programs and its nuclear research so that when the deal lapses Iran can leap to become a nuclear power.  So it is vital that the next 10 years have conventional arms agreements and peacemaking to reduce Iran’s perceived security needs for nuclear arms.

Iran will not abandon its desire to be an influential great power.  But that can be useful as a counter-balance to Russia in the Middle East (one of America’s original reasons to ally with the  Shah of Iran decades ago).   And since the goal of sanctions relief is to rebuild Iran’s economy, and a major war will return it to isolation and undermine that economy, we can hope that Iran can be induced to undertake a peace-maker’s role in the region, rather than a trouble-maker’s role, once the deal is concluded.

Again, continued work by diplomats on implementing the deal, to ensure it meets its goals, is vital.  We cannot pat ourselves and our colleagues on the back and walk away.  The deal is a starting point for improving security and peace in the Middle East, just a starting point, and needs vigorous follow-through.  Yet it is a vital starting point and improves the odds for better outcomes in the next few years.

Both these deals are far better than no deals would have been.  And they give hope at a time when the world needs so many  additional deals — for peace among nations in the South China sea; for cooperation on global climate change; for refugees and asylum-seekers in Europe; on Cyprus; on South Sudan;  on Afghanistan to name just a few.

The diplomats and leaders have now taken the first step in doing their jobs.  Let us hope they follow through to make sure that the  potential benefits of these deals, so hard-won, are realized.

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About jackgoldstone

Hazel Professor of Public Policy at George Mason University
This entry was posted in The Global Economy and tagged , , , , , . Bookmark the permalink.

4 Responses to Deals are Good!

  1. Solaiman Afzal says:

    In the United States it seems that our congress is heavily influenced by Israeli lobby who is bent on preventing the Iranian Nuclear deal from fruition. As you correctly mentioned I hope enough Americans realize that the current sanction regime against Iran was unsustainable, thus for benefit of our national security, world peace, and human dignity something had to be done. Further, unpredictable world events such as major terrorist attacks, natural disasters, and economic meltdowns tend nullify most long term deals. That’s why we shouldn’t worry what will happen with Iran-U.S. in 10, 20 or 50 years from now. Because things that we can’t even imagine will change that dynamic; lets focus on now and the near future.

  2. I’m surprised you don’t have more to say about the extent to which it would seem democracy or at least democratic practices were run over and left for dead. The Greek people voted, no? And were punished for it and now are being punished again…an undemocratic EU in which the Germans get to decide whether they approve of your electoral choices sounds suspiciously like the (not so) old Western Hemisphere with elections just for show (“para inglés ver” as the Portuguese used to say). I think this is a reason for concern.

    • Eric, as you know, democracy is under threat in many ways in the EU. The inability of Greeks to vote themselves out of the austerity straitjacket is just one example. The cleavage in values between Germany and other northern countries and southern countries is great, but no greater than that which used to exist between the United States’ northeast and south. So IF Germany will submit to more democratic procedures for making EU decisions, rather than insisting it has a national veto, progress can be made. Otherwise, not so much.

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