Death by Debt - My Response to The German Finance Ministry Guest contribution by Jeffrey Sachs July 31, 2015 http://international.sueddeutsche.de/post/125522613465/death-by-debt-my-response-to-the-german-finance
[...] Greece has an economic crisis no less dramatic that Germany faced under Heinrich Brüning in 1930-33. The unemployment rate is equal to 27 percent; the youth unemployment is equal to nearly 50 percent; output is down by 30 percent; the banks are in panic and collapse. Greece is at the breaking point. Germany can give Greece all of the lectures it wants and make all of the demands that it wants, but Greece will collapse if it is forced to service all its debt and cut public spending accordingly. These policies are impossible to pursue - as was also the case in Germany under Brüning. As a result no democratically elected government in Greece will be able to survive for more than a few months at a time. The current path will only lead to disaster for Greece. The German taxpayers believe that they have been extremely generous to Greece, giving Greece repeated financial loans. Yet this is partly a mirage. The taxpayers have been generous to their own banks, not to Greece. Greece was required to use the first bailout of 100 billion euros in 2010 not for itself but to repay loans to banks, mostly German and French. Greece was similarly required to use the second and third bailouts to repay debts to external creditors. Hardly any of the bailout funds were used to support the investment that Greece needs to achieve export-led growth or to meet urgent social needs. Now Greece will get a fourth package, once again to be used to repay the IMF, ECB, European Financial Stability Fund, and other creditors, as well as to put money into its failed banks. Yes, the German taxpayers have been generous – to Greece’s creditor banks and other institutions, not to the Greek people. Debt servicing, in short, is a shell game: give Greece tens of billions of euros every couple of years so that Greece can repay the debts that it owes. Professionals call this policy “pretend and extend.” The problem is that the debt grows; the Greek banks die; and the Greek small and medium enterprises collapse. The brain drain from Greece continues. It is death by debt. The strategy did not work for Latin America in the 1980s, and it will not allow Greece to escape its economic death trap. In short, when a crisis is as deep as Greece’s, the most powerful creditor on the scene has historic responsibilities. Germany must help Greece to make a new start, not to collapse. Germany needs to act and grant partial debt relief to Greece, in the name of European prosperity, democracy, and unity. Of course, such debt relief must be accompanied by major structural reforms in Greece. However, as Germany knows all too well thanks to its own Agenda 2010 reforms enacted under Chancellor Schröder, reforms to the labor market, public administration, the judiciary, or the opening of “closed professions” take time to translate into higher economic growth. Back then Germany breached the Maastricht criteria in conjunction with its own the reforms. Today, Greece, in vastly worse shape, needs debt relief in order to succeed in its reform efforts. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
