In a Project Syndicate column, Edmund Phelps documents structural problems in Greece. He emphasizes that other EU countries face similar challenges.
In the Guardian, Heather Stewarts reports about the contents of the memorandum of understanding that the Greek government and its creditors have agreed on. It contains four pillars:
- Fiscal sustainability, including pension reform and social welfare review;
- Financial stability, including bank recapitalization;
- Growth, competitiveness, investment, including liberalization of consumer markets, labor markets and professions;
- Modern state and administration, including judicial reform and anti corruption measures.
In an Ekathimerini article, Dimitra Manifava reports about the reform measures under way following recent negotiations between Greece and her international creditors.
In a Project Syndicate column, Edmund Phelps argues that it is not “austerity” which is to blame for Greece’s plight.
So spending more is not the remedy for Greece’s plight, just as spending less was not the cause. What is the remedy, then? No amount of debt restructuring, even debt forgiveness, will suffice to achieve prosperity (in the form of low unemployment and high job satisfaction). Such measures would only help Greece to revive government spending. Then the economy’s stultifying corporatism – clientelism and cronyism in the public sector and vested interests and entrenched elites in the private sector – would gain a new lease on life. The European left may advocate that, but it would hardly be in Europe’s interest.
The remedy must lie in adopting the right structural reforms. Whether or not the reforms sought by the eurozone members raise the chances that their loans will be repaid, these creditors have a political and economic interest in the monetary union’s survival and development. They should also be ready to help Greece with the costs of making the necessary changes.
Social networks blame the German negotiators at the recent Euro summit for trying to humiliate Greece and dictating policy. This does not make any sense if one views the agreement as a loan contract between parties that are free to choose. But does it make any sense from a broader, political perspective?
According to Open Europe,
Italian Finance Minister Pier Carlo Padoan told Il Sole 24 Ore, “Almost all [Eurozone countries] were against a new [bailout] programme. Only the French, tiny Cyprus and we were in favour of a compromise. Maybe this isn’t well understood.”
In the FT, Gideon Rachman writes:
What nonsense. If anybody has capitulated, it is Germany. The German government has just agreed, in principle, to another multibillion-euro bailout of Greece — the third so far. In return, it has received promises of economic reform from a Greek government that makes it clear that it profoundly disagrees with everything that it has just agreed to.
German taxpayers seem to agree. According to Open Europe,
a snap Infratest Dimap poll for ARD found that 52% of respondents supported the agreement and 44% opposed it, while 62% said they want Greece to remain within the Eurozone compared to 32% who want it to leave. However, 78% of respondents said they did not trust the Greek government to fully implement the agreement.
The Economist’s Buttonwood column: “Even More on Debt and Democracy.”
Lars Feld’s comment in the FT.
Lee Jong-Wha’s comment on Project Syndicate.
In a Vox blog post, Olivier Blanchard addresses four critiques against the IMF’s engagement in Greece. He argues that
- the 2010 program did help Greece; without it, Greece would have undergone much harsher “austerity;”
- the financing given to Greece did not only benefit foreign banks; the 2012 PSI amounted to debt relief on the order of 10’000 Euro per capita;
- “[m]any … reforms were either not implemented, or not implemented on a sufficient scale … [m]ultipliers were larger than initially assumed … [b]ut fiscal consolidation explains only a fraction of the output decline”;
- conditionality also reflects political constraints on the part of the lender countries.
Olivier sees the Fund on the sidelines, in particular after Greece’s default against the IMF:
The role of the Fund in this context is not to recommend a particular decision, but to indicate the tradeoff between less fiscal adjustment and fewer structural reforms on the one hand, and the need for more financing and debt relief on the other.
The BIS has published its annual report and warns that the “unthinkable threatens to become routine.” In the press release the Bank argues that
[a]ddressing these deficiencies calls for “a triple rebalancing in national and international policy frameworks”, towards policies that pay greater attention to the medium term, to financial factors and to the costly interplay of domestic-focused decisions. … An essential element of this rebalancing is to rely less on demand management policies and more on structural ones, so as to abandon the debt-fuelled growth model that has acted as a political and social substitute for productivity-enhancing reforms.
Ashoka Mody argues in an Econbrowser blog post that recent IMF research should guide a Greek deal. According to Mody this research shows that debt overhang is very costly; “austerity” can be self defeating; and structural reforms generate uncertain payoffs. He therefore recommends
- large scale debt relief, resulting in a debt quota of 50%,
- a scale down of the banking system, and
- a primary surplus quota of 0.5% over the coming years.
Olivier Blanchard, IMF chief economist, disagrees.