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The two lives of Greek debt's write-off

30 August 2015 / 16:08:51  GRReporter
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We offer you a reprint of an analysis authored by Aristos Doxiadis and published in Kathimerini.

Every great political demand has two lives. The first one is when somebody makes it, and the second one comes at the time when it is being implemented. Same goes for the debt reduction demand of today's government.

We're still in its first life, and it has already affected our economy stronger than it is likely to affect it should it ever actually materialise.

It was an emblematic rallying cry of SYRIZA in opposition and also the main objective of the negotiations, as they were planned by Varoufakis. It was a victory, which the prime minister wanted to lay at the feet of voters within the framework of the third memorandum, which he signed under duress.

But it was also the only major issue, on which our European partners did not back down, at least as regards the near future. Which is why the government chose to tighten the rope – until we came to the bank closures and on the verge of Grexit.

So, the debt reduction demand has already cost the Greeks tens of billions and inflicted incalculable damage on our future. If it ever became a reality, the benefits might not offset the already incurred losses. Is debt reduction so vitally important that it is worth sacrificing the basic normality that we still had last year: the market liquidity, the reserves of municipalities and hospitals, tax collection, banking, imports and exports? Did it justify being oblivious of all other possible objectives of our financial policy?

Those who observe the Greek economy up close, are aware of other policies that could give the same or even stronger positive impetus on its recovery in the short term, apart from the structural reforms, which could help its long-term development. There are for instance €35 billion available, which could come into Greece from the new ESPA program and other European sources. The pace of injecting this money into the economy is of crucial importance. If it came earlier, its positive effect would be greater than that of, among others, a 2% primary budget surplus. If delayed, no relief of payments could make up for that. No less important for the economy is the liquidity of banks – something the government has no plan for at all.

But the debt reduction appeal has an undeniable advantage for the government. It requires nothing from the government itself, unlike any other policy of equivalent value. Strengthening the lending sector implies the trimming down of anti-capitalist rhetoric to lure back depositors, as well as handing over some banks to foreign control. The absorption of EU funds requires managerial skills, as well as decisions that could trigger in-party frictions. Same goes for the ability to attract foreign direct investments. Same goes for reforming the tax system, for other reforms, or for tackling corruption. He who chose to brandish any of these things like a banner should subsequently be held responsible for his own inability to live up to them.

Debt however is something you blame foreigners for. An ideal target for the populist rhetoric that denies the necessity of tough ventures in the country and loathes a plethora of seemingly minor issues.

There are also some foreign commentators who have lent their voice to the debt relief rhetoric, some of them in a rather peremptory way. They belong to two categories.

The first is that of the macroeconomists who see each and every national economy as a single, universally applied model. These economists scrutinise some basic parameters and predict whether we are in for recession or recovery, without so much as dealing with institutional detail or political specifics. Sovereign debt is one of the few comparable parameters of any economy: it is extremely high in Greece, therefore – here is an obvious way to make the country look better. The absorption of European funds is typically not featured in global models, and hence ignored. Bank balance sheets are microeconomics, they get influenced by non-economic factors, such as scary depositors, hence they are best ignored, too. It doesn't even cross their minds to trade debt reduction off for some other small requests, because in their world economic policy is something applied by a solid state rather than being the result of negotiations.

The second category of debt reduction fans are the large funds, which invest in government bonds and their derivatives. They are oblivious of manufacturing companies, technologists, labour relations, or the whole social environment that defines the long-term potential of each nation. For them, a country is nothing more than its securities sold on world markets. A lower debt means nothing else but better guarantees. The government sees more importance in their investment criteria than in the companies, which commit their capital in Greece over many years, vest in their own work and provide jobs to increase the national income.

Debt reduction can be very helpful for the long-term development of Greece – only if a number of other important policies were thrown in. But until this day demanding a lower debt has worked in the opposite direction: it has trampled over the most important decisions for the country. But it has also given a chance to the windbags to inflate their false patriotism and shallow cosmopolitanism while snubbing the world of production.


Tags: analysis Aristos Doxiadis Kathimerini Greek debt cancellation
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