Top economists, including Nobel prize-winners Joseph Stiglitz and Chris Pissarides, are calling for debt forgiveness for Greece as the country heads into a crucial election on Sunday.
A letter published in the Financial Times, co-authored by 18 eminent economists from academia, research institutes and industry, states that “the whole of Europe will benefit from Greece being given the chance of a fresh start”.
Some form of forgiveness of the country’s mountainous sovereign debt burden (currently around 177% of GDP) would be necessary, though not by itself sufficient, in order for the country to aid Europe’s prospects for sustainable economic recovery.
Here are their suggestions in detail:
- Greece should be provided a “further conditional increase in the grace period, so that Greece does not have to service any debt, for example for the next five years and then only if Greece is growing at 3% or more”.
- Some debt reduction, especially of bilateral official debt [held by institutions like the European Central Bank], to further increase the fiscal space available.
- Significant money [provided through eurozone institutions] for efficient investment projects, especially for exports.
The letter is especially interesting as their calls mimic a number of proposals put forward by Greece’s left-wing Syriza party, which is currently leading in the polls. Alexis Tsipras, the head of the party and the man who could become Greece’s next prime minister, took the opportunity earlier this week to outline his economic plans in the FT.
A core part of his proposals is to call a “European debt conference” if elected to discuss easing the terms of Greece’s debt repayments and to stop the Greek government’s austerity policies in order to prioritise growth. He wrote: “Austerity is not part of the European treaties; democracy and the principle of popular sovereignty are.”
While stressing the importance of economic reforms, the 18 signatories of the recent letter essentially appear to agree with that proposal. As they write (emphasis added):
“We believe it is important to distinguish austerity from reforms; to condemn austerity does not entail being anti-reform. Macroeconomic stabilisation can be achieved through growth and increased efficiency in tax collection rather than through public expenditure cuts, which have reduced the revenue base and led to an increase in the debt ratio.”
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