Does Greece Need More Official Debt Relief? If So, How Much?

Does Greece Need More Official Debt Relief? If So, How Much? Peterson Institute for International Economics. Working Paper, 17-6. Jeromin Zettelmeyer, Eike Kreplin and Ugo Panizza. April 2017

Creditor countries and international organizations continue to disagree whether Greece should receive additional official debt relief, and if so how much. This paper first shows that these disagreements can be attributed to competing assumptions about Greece’s future capacity to repay, particularly about economic growth and the fiscal primary balance. It next evaluates the plausibility of alternative primary balance assumptions using international evidence about fiscal adjustment experiences. It concludes that primary balance paths required to make Greece’s debt sustainable are not plausible and that Greece will therefore require additional debt relief. Finally, the paper shows that the debt relief measures suggested by the Eurogroup in May 2016 (albeit with significant caveats on whether they will in fact be granted or not) could be sufficient to address Greece’s sustainability problem, provided the Eurogroup is prepared to accept both very long maturity extensions on European Financial Stability Facility (EFSF) debt (to 2080 and beyond) and interest deferrals that could lead to a large rise in EFSF exposure to Greece before it begins to decline. If the Eurogroup wishes to avoid the latter, it will become necessary to either (1) extend the scope of the debt restructuring, (2) lower the interest rates charged by the EFSF significantly below current predictions, or (3) extend European Stability Mechanism (ESM) financing beyond 2018 and delay Greece’s return to capital markets for a protracted period. [Note: contains copyrighted material].

[PDF format, 54 pages, 479.65 KB].

Views on National Economies Mixed as Many Countries Continue to Struggle

Views on National Economies Mixed as Many Countries Continue to Struggle. Pew Research Center. Margaret Vice. August 9, 2016.

Almost a decade after the global financial crisis rattled national economies, many in the world feel their respective countries’ economies remain weak.The survey reveals a bleak picture in parts of Europe, with more than eight-in-ten in Greece, France and Spain describing their country’s economic situation as bad. This gloom is not shared by all in the European Union, however – most Swedes, Germans and Dutch say their economy is doing well. And in China, India and Australia, views are mostly positive. [Note: contains copyrighted material].

[PDF format, 13 pages, 151.86 KB].

The Greek Public Debt Problem

The Greek Public Debt Problem. Levy Econmics Institute of Bard College. Michalis Nikiforos et al. May 2016.

The paper examines the issue of the Greek public debt from different perspectives. It provides a historical discussion of the accumulation of Greece’s public debt since the 1960s and the role of public debt in the recent crisis. A solution to the Greek public debt problem is a necessary but not sufficient condition for the solution of the Greek and wider European crisis. A broader agenda that deals with the malaises of the Greek economy and the structural imbalances of the eurozone is of vital importance. [Note: contains copyrighted material].

[PDF format, 31 pages, 522.1 KB].

The East Mediterranean Triangle at Crossroads

The East Mediterranean Triangle at Crossroads. Strategic Studies Institute. Jean-Loup Samaan. March 31, 2016.

The evolving dynamics in the East Mediterranean Triangle, composed of Israel, Turkey and Greece, reveal key security and economic trends that have direct implications for the United States and the North Atlantic Treaty Organization (NATO).

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Central Banks: Printing Money Delays Domestic Structural Reforms

Central Banks: Printing Money Delays Domestic Structural Reforms. YaleGlobal. Will Hickey. June 30, 2015.

Countries are waging currency wars in competition over export markets, jobs and foreign investment, printing money, taking on more debt, rather than pursuing serious and needed domestic structural reforms. “Without deeper structural reforms that encourage consumption, innovation and a secure safety net ensuring certainty, the democratic governments will eventually flounder and citizens will vote leaders out of power,” writes Will Hickey. Greece is the most prominent example. Financial markets could soon lose patience with other countries like Italy or the United States. Necessary reforms include streamlining recalcitrant bureaucracies, improving education to encourage innovation, increasing immigration or reducing promises on pensions and other entitlements, and reducing reliance on low-value exports like natural resources or manufacturing with low-skilled labor. [Note: contains copyrighted material].

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European Union Divided Over Greek Bailout

European Union Divided Over Greek Bailout. YaleGlobal. Chris Miller. April 16, 2015.

Fervent democracy at the national level is hampering monetary policymaking for the broader European Union in bringing quick end to the Greek debt crisis, explains Chris Miller. Greek voters resent austerity measures imposed by the rest of Europe led by Germany, yet polls show that two thirds prefer staying in the eurozone. Europe is divided: Electorates in the south generally favor debt write-offs and those in the north insist on austerity. Extremists on both the left and right take advantage of the divide. The debt crisis could be ended swiftly with a compromise mix of write-offs and conditions on austerity, yet both sides stubbornly seek voters’ approval to cling to their positions. An exit by Greece from the eurozone would trigger economic chaos along with other unintended security consequences spreading throughout the continent. The reputations of Greece and the European Union each would suffer with a Grexit. [Note: contains copyrighted material].

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