Abstract
Abstract: The present paper examines the issue of the Greek public debt. After providing a historical discussion, we show that the austerity of the last six years has been unsuccessful in stabilizing the debt while,at the same time,ithas takena heavy toll on the economy and society. The recent experience shows that the public debt is unsustainable and therefore a restructuring is needed. An insistence on the current policies is not justifiable either on pragmatic or on moral or any other grounds.The experience of Germany in the early post-WWII period provides some useful hints for the way forward. A solution to the public debt problem is a necessary but not sufficient condition for the solution of the Greek and European crisis. A wider agenda that deals with the malaises of the Greek economy and the structural imbalances of the Eurozone is of vital importance.
Highlights
The Greek economic crisis of the last seven years has been the most severe crisis that a developed economy has experienced in modern history, both in terms of output and employment loss as well as duration
The situation in Greece is a testament to the catastrophic effect that austerity can exert on an economy and the disastrous consequences it can have for the social fabric
We start with a historical discussion of the accumulation of the Greek public debt before 2009 and the reasons that led to the increase in the debt-to-GDP ratio over time
Summary
The Greek economic crisis of the last seven years has been the most severe crisis that a developed economy has experienced in modern history, both in terms of output and employment loss as well as duration. We start with a historical discussion of the accumulation of the Greek public debt before 2009 and the reasons that led to the increase in the debt-to-GDP ratio over time This discussion is necessary in order to understand the crisis and the future challenges facing the Greek economy, because the roots of the current crisis in Greece and the Eurozone need to be traced back to the Maastricht Treaty and the flaws in the design of the common currency area. At various stages in the endless negotiations, the promise of a debt restructuring has acted as the eventual reward for imposing yet another “difficult but necessary” austerity package (as was the situation in early May 2016, when this text was being written) This discussion of the experience of the last six years shows that Greece’s public debt is clearly unsustainable; we argue that a bold restructuring of the debt is needed for the Greek economy to reignite its engine of growth.
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