The time is up! A realistic proposal to end Greece’s debt overhang

by Chris Marsh, Dominik Nagly, George Pagoulatos & Elias Papaioannou

Vox
November 17, 2016

It is now seven years since the Greek crisis began. As well as reflecting the chronic deficiencies of its own institutions, the failings in Greece also reflect substantial shortcomings in international institutions. This column argues that it is time for all sides to move on, and proposes a simple debt operation for Greece that can deliver debt sustainability with minimal adjustments to the ESM operating procedures.

It is now seven years since the Greek crisis began. Since 2008, real output has been reduced by one-quarter; unemployment has been above 23% for over five years, and youth unemployment around 50%. Meanwhile, Greek public debt-to-GDP remains above 175% – despite a huge debt write-down. The banking system has long since stopped intermediating savings and investment; the welfare state is in dire straits. Non-performing loans clog the banking system. An exodus of the most talented and vibrant young Greeks has begun, eroding the tax base. Trust in democratic institutions has plummeted. For many Greeks, hope has long since given way to hopelessness.

The Greek crisis reflects chronic deficiencies of its institutions, structural shortcomings, indecisiveness, and unwillingness of its political system to address long-lasting problems, among perhaps deeper societal issues. Yet, the failings in Greece also reflect substantial shortcomings in international institutions. The IMF failed to fulfil the promise of Bretton Woods to provide temporary financial support to facilitate external adjustment “without resorting to measures destructive of national or international prosperity.” EU institutions – those intended to foster peace through cooperation and shared prosperity – have turned upon each other.

It’s time for all sides to move on.

More