Greece’s debt is 180% of GDP, which seems to make it insolvent without large primary surpluses. This column argues that since restructuring lowered the interest burden to just 2% of GDP, Greece is solvent – or would be with nominal GDP growth of just 2%. The ECB’s misdiagnosis has caused an unnecessary banking crisis. The solution is to accept that Greek debt is sustainable, so the austerity programme can be relaxed and liquidity support provided to the Greek banking sector.
Paul De Grauwe, Friday, July 3, 2015
Barry Eichengreen, Wednesday, July 1, 2015
Barry Eichengreen’s VoxEU column arguing that the euro was irreversible has been viewed over 230,000 times. Now it appears to be wrong. In this column, originally posted on the website ‘The Conversation’, he looks to see where his predictions went wrong. Basically the economic analysis – which focused on bank runs – was right. He went wrong in overestimating the political competence of Greece and its creditors.
Domingo Cavallo, Tuesday, June 30, 2015
Grexit and the reintroduction of the drachma would have severe consequences for the Greek people. This column argues, based on Argentina's experience, that this would produce a sharp devaluation of the drachma, inflation, and a severe reduction in real wages and pensions. The effects would be far worse than the reductions that could have occurred as a consequence of the policies proposed by the Troika. By resuming negotiations, continuing with measures to achieve fiscal consolidation and carrying out adequate structural reforms, Greece could reverse the current situation in a sustainable way. It has the great advantage that the ECB, most European governments and the IMF are willing to resume negotiations.
Otaviano Canuto, Francisco Carneiro, Leonardo Garrido, Wednesday, July 1, 2015
Industrialised and developing countries have differing fiscal strategies for dealing with the business cycle. But are countries’ strategies different according to whether they are industrialised? This column presents new evidence suggesting that the picture is complex. Procyclical fiscal policies remain the norm amongst most non-industrialised developing countries, but some key developing countries have recently moved toward a counter-cyclical stance as a result of strengthening institutions.
Charles Wyplosz, Monday, June 29, 2015
This weekend’s dramatic events saw the ECB capping emergency assistance to Greece. This column argues that the ECB’s decision is the last of a long string of ECB mistakes in this crisis. Beyond triggering Greece’s Eurozone exit – thus revoking the euro’s irrevocability – it has shattered Eurozone governance and brought the politicisation of the ECB to new heights. Bound to follow are chaos in Greece and agitation of financial markets – both with unknown consequences.
Thorsten Beck, Sunday, June 28, 2015
The breakdown of negotiations between Greece and the Troika comes as a shock. It is not, however, the end of the game. This column argues that the rupture can serve as a starting point for a new relationship between Greece and its creditors – an approach that does not provide fresh cash to the Greek government and does not impose specific policy reforms from outside.
Richard Baldwin, Sunday, June 21, 2015
The Greek crisis has rumbled along since 2009. Vox columnists have been analysing the situation with uncanny foresight right from the beginning. This column reviews a few of the contributions from 2009 and 2010 that predicted many of today’s challenges using nothing more than simple economic logic and a firm grasp of the facts.
Richard Baldwin, Sunday, June 21, 2015
Vox columnists have posted a steady stream of research-based policy analysis and commentary on the Greek Crisis. This column provides a list of all the relevant columns posted since the beginning of 2015.
Michalis Haliassos, Saturday, June 20, 2015
The Greek adjustment programme failed. This column argues that the problem lay in the programme’s design. By focusing on deficit reductions and the wrong type of reform, it failed to build up the only thing that could provide the basis for debt repayment – namely a dynamic, export-oriented productive base. A broader reform agenda that creates hope would be accepted by Greeks and it would make eventual repayment more likely. The need for some patience in reaching the final destination of this journey should no longer be an excuse for not taking the first step.
Ashoka Mody, Thursday, June 18, 2015
The Greek crisis continues to take centre stage in policy debates. This column provides insight on the topic using evidence from three recent IMF studies. A suggested programme for Greece includes debt relief (debt equal to 50% of GDP and payable over 40 years), scaling down the banking system, and setting a flat 0.5% of GDP primary surplus over the next three years.
Olivier Blanchard, Monday, June 15, 2015
Greece’s negotiations with its creditors is at a critical point. This column, by the IMF’s Chief Economist, discusses the offer made to the Greek government. For the deal to work, the Greek government needs a credible budget plan for attaining the targeted surpluses, and European creditors need to agree to significant additional financing, and to debt relief sufficient to maintain debt sustainability. Under the existing proposal, debt relief can be achieved through a long rescheduling of debt payments at low interest rates.
Paolo Manasse, Friday, June 12, 2015
Greece’s problem came from the bursting of a debt-financed growth bubble inflated with the help of EZ membership. This column argues that the inevitable adjustment was more painful than necessary. The fiscal consolidation was too tight and too front-loaded, and, importantly, structural reform wasn’t properly sequenced. By concentrating on labour market rather than product market reforms, the sharp wage fall could not be paralleled by a similar reduction in prices, and now soaring inequality is undermining support for needed reforms.
Jeremy Bulow, Kenneth Rogoff, Wednesday, June 10, 2015
The conventional wisdom in Greece is that the nation has suffered years of excessive, Troika-imposed austerity in a short-sighted effort to extract maximum repayment. This column argues that, in fact, Greece was a net receiver of Troika funds from 2010 to mid-2014, with a modest reverse flow since Greece stalled on its reforms. Both sides have negotiated in their self interest – influenced by bargaining threat points that have had everything to do with the direct costs of default and little to do with Greece’s concern about its reputation for making repayments.
Elias Papaioannou, Richard Portes, Lucrezia Reichlin, Friday, June 19, 2015
Greece seems to be on the verge of an agreement that would release much needed funds. This column argues that an agreement on completion of the second programme will not restore confidence, nor will it resolve the deep economic, financial and political uncertainties that confront Greece today. The focus should swiftly shift to the design of an efficient, realistic and truly reforming new programme.
Biagio Bossone, Marco Cattaneo, Tuesday, May 26, 2015
Introducing a currency in parallel to the euro could help Greece repay its external debt and resume economic activity. This second column in a two-part series evaluates the different options and their effects on aggregate demand and fiscal sustainability. The authors propose a tax credit certificates programme, which they argue could generate new spending capacity and avoid the adoption of new austerity measures.
Biagio Bossone, Marco Cattaneo, Monday, May 25, 2015
To prevent it from defaulting on its debt, the Greek government might need to introduce a new domestic currency, in parallel to the euro. This column, the first in a two-part series, compares the current proposals for a parallel currency and discusses how such a policy instrument could promote economic recovery.
Carlos Cantú, KeyYong Park, Aaron Tornell, Sunday, April 12, 2015
The wisdom of structural reform during a crisis is a subject of heated debate. This column compares Greece’s experience to that of Mexico during the debt crisis of the 1980s. Mexico did not receive a haircut until seven years into the crisis – after structural reform was already underway. In Mexico that reform was the outcome of an internal conversation – not a diktat from the outside – and it happened during the height of the crisis.
Andrés Rodríguez-Pose, Yannis Psycharis, Vassilis Tselios, Tuesday, March 3, 2015
Electoral results and the geographical allocation of public investment in Greece have been intimately related. This column describes how incumbent Greek governments between 1975 and 2009 tended to reward those constituencies returning them to office. Increases in both the absolute and relative electoral returns for the party in government in a given Greek region were traditionally repaid with a greater level of per capita investment in that region. Single-member constituencies were the greatest beneficiaries of this type of pork-barrel politics.
Lars P Feld, Christoph M Schmidt, Isabel Schnabel, Benjamin Weigert, Volker Wieland, Friday, February 20, 2015
Claims that ‘austerity has failed’ are popular, especially in the Anglo-Saxon world. This column argues that this narrative is factually wrong and ignores the reasons underlying the Greek crisis. The worst move for Greece would be to return to its old ways. Greece needs to realise that things could actually become much worse than they are now, particularly if membership in the Eurozone cannot be assured. Instead of looking back, Greece needs to continue building a functioning state and a functioning market economy.
Thomas Philippon, Tuesday, February 10, 2015
Greece has a problem with debt that must be addressed on way or the other. This column proposes a way to estimate a ‘fair’ level of fiscal consolidation in Greece. The author’s central argument is that contagion risk made the Greek crisis worse by preventing early debt restructuring. If restructuring took place in 2010 instead of 2012, Greece’s debt to GDP ratio would have been 30 percentage points lower today. To bring Greece’s debt under 120% of GDP, it would be fair for Greece to run a 3% primary surplus over the next decade or two. This is less than the current target of 4.5% but still requires a significant effort.