Economists continue to debate whether – and to what extent – Greek debts should be relieved. This column takes through the details of Greek debt, what relief options are open to Greece, and what the likely consequences of relief might be for all parties. Yet again, there are no easy choices – but that doesn’t mean economists and policymakers shouldn’t try.
William R. Cline, Monday, August 24, 2015
Jon Danielsson, Thursday, August 13, 2015
The Greek and the Icelandic crisis have much in common, not the least the heavy pressure from foreign countries and the hectoring from their public officials. In Iceland and in Greece this was counterproductive, hardening the opposition to any settlement. The will to reform needs to come from within, and the sooner the Troika realizes this, the easier it will be to deal with the Greek situation.
Timothy W. Guinnane, Thursday, August 13, 2015
Greece’s crisis has invited comparisons to the 1953 London Debt Agreement, which ended a long period of German default on external debt. This column suggests that looking back, the 1953 agreement was unnecessarily generous given that Germany’s rapid growth lightened the debt repayment burden. Unfortunately for Greece, the motivations driving the 1953 agreement are nearly entirely absent today.
Matthias Schlegl, Christoph Trebesch, Mark L. J. Wright, Tuesday, August 11, 2015
Greece is the first developed country to default on the IMF. But it continues to service its debt owed to private bondholders. How does this compare to historical experience? This column presents new evidence on seniority in sovereign debt markets. Despite the lack of a sovereign insolvency procedure, there is a clear-cut pecking order of sovereign debt repayments, which holds across countries and over time. Greece is an outlier case, and the Eurozone rescue loans face an elevated risk of arrears and haircuts in the future.
Anil Ari, Giancarlo Corsetti, Andria Lysiotou, Monday, August 10, 2015
Cyprus has been striving to get back on its feet after a painful bailout in 2013. This column examines the lessons that could have been drawn from the Cypriot experience by Greece in its recent attempt to seal a bailout deal. Specifically, lengthy negotiations – while tending to mitigate the risk of contagion – offer little benefit for debtor countries, and capital controls, once implemented, cannot be easily undone. While they come too late for Greece, these lessons can be important for countries in need of financial assistance in the future.
Sebastian Edwards, Thursday, August 6, 2015
Many commentators continue to think that Greece’s best bet is Grexit and the drachma, but few are talking about what will happen to contracts. This column uses Franklin D Roosevelt’s devaluation of the US dollar to give an historical perspective on currency devaluations and contract litigation. Roosevelt got away with it because the Supreme Court ruled that prices in old contracts were void and, importantly, because everyone trusted the Supreme Court’s rulings. Grexit would mean litigation in international courts – courts that are likely to side with the plaintiffs.
Christos Koulovatianos, John Tsoukalas, Monday, July 20, 2015
As numerous Greek MEPs opposed the Eurozone summit deal, implementation will require a broad coalition of political parties. This column argues that corruption in Greek politics will prevent the formation of such a coalition. The heavy debt service leads parties to invent extreme ways of responding to super-austerity and to strongly oppose direct reforms that challenge existing clientelism. The way out is to sign a new agreement that combines debt restructuring and radical transparency reforms, including naming-and-shaming practices, to block clientelism in the medium and long run.
Fabio Ghironi, Saturday, July 18, 2015
Success of the German-inspired solution for the latest Greek crisis is far from assured. If it fails, the Eurozone may be changed forever. This column argues that the failure would lead to an outcome that has been favoured for decades by Germany’s Finance Minister, Wolfgang Schäuble. Perhaps the package the Eurozone agreed is just a backdoor way of getting to the ‘variable geometry’ and monetary unification for the core that the Maastricht criteria had failed to achieve.
Nauro F. Campos, Fabrizio Coricelli, Friday, July 17, 2015
Greece’s reluctance to implement ‘the structural reforms required for debt sustainability’ is a recurrent theme in the debate on the EZ Crisis. This column qualifies this conventional wisdom by reassessing the relationship between Greece and the EU over the past four decades. Although Greece has implemented structural reforms that were substantial enough to bring about a turning point in its relationship with the EU, these reforms have been overly localised, badly sequenced and implemented by short-sighted political elites. The role that structural reforms can play in solving the current crisis should not be overestimated.
Paul De Grauwe, Yuemei Ji, Thursday, July 16, 2015
When the ECB buys a Eurozone member’s bonds, the government pays interest to the ECB but the ECB rebates it to the government. If Greece repays its ECB-held bonds, it loses this ‘free borrowing’. This column argues that repayment is like ‘reverse QE’. To maintain its QE targets, more bonds from other EZ members must be bought – thus shifting the free borrowing from Greece to other EZ members. To avoid this perverse outcome, the ECB could extend the maturity of the Greek bonds.
Jeffrey N. Gordon, Georg Ringe, Friday, July 17, 2015
The Greek Crisis is a crisis rather than a problem due to the vulnerability of Greek banks. While the banks have deep problems, this column argues that these would have been mitigated if a fully operational banking union were in place. A full banking union requires joint banking supervision, joint bank resolution, and joint deposit insurance. The EZ only has the first so far. Completing the banking union must be part of any long-term solution.
Thorsten Beck, Wednesday, July 15, 2015
Monday’s deal was a political compromise consistent with the political constraints of Greece and its creditors. It is doubtful, however, that it will provide a long-term solution to Greece’s economic crisis. At a minimum, the momentum should be used to eliminate the option of Grexit once and for all. The bank-sovereign ties should be cut to turn Greek banks from a source of crises into a growth-supporting sector.
Charles Wyplosz, Tuesday, July 14, 2015
The new bailout deal for Greece was not easy. This column argues that it was also a failure. It will not be enough to recapitalise banks, it asks for structural reform that exceeds Greek capacities, and it raises the Greek debt-to-GDP ratio to unsustainable levels. In a few months or quarters, the programme will fail and the Grexit question will flare up again.
Julian Schumacher, Beatrice Weder di Mauro, Sunday, July 12, 2015
The sustainability of Greek debt is central to the negotiations. To date the sustainability calculations have been based on the IMF’s standard models for calculating sustainability for countries with market access. This column argues that these are not appropriate for Greece – a middle-income country with highly concessionary financing. The ESM should develop a new, appropriate analytic tool to reflect Greece’s special situation.
Olivier Blanchard, Friday, July 10, 2015
The Greek crisis is in a critical phase. This column, by the IMF’s Chief Economist, reflects on the various critiques of the handling to date of Greece’s problems.
Francesco Caselli, Camille Landais, Christopher Pissarides, Silvana Tenreyro, Wouter den Haan, Thursday, July 9, 2015
Greek exit from the Eurozone has uncertain and potentially dangerous implications for all involved. This column, signed by 25 LSE economists, urges the Greek government and its creditors to act more responsibly. The first priority is to get Greece on a path of sustainable growth by relaxing austerity in the near term and linking debt restructuring to essential structural improvements.
Carmen M Reinhart, Thursday, July 9, 2015
Contrary to the intent of the designers of what was to be an irreversible currency union, Greece may well exit the Eurozone. This column argues that default does not inevitably trigger the introduction of a new currency (or the re-activation of an old one). However, if ‘de-euroisation’ is the end game, then a forcible (or compulsory) currency conversion is likely to be a central part of that process, along with more broad-based capital controls.
Paul De Grauwe, Friday, July 3, 2015
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.
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.