Symposium on the Greek Debt CrisisGeneral Discussion Julian Schumacher, Beatrice Weder di Mauro, Carmen M. Reinhart, Christoph Trebesch, Christopher L. House, Linda L. Tesar, Yannis M. Ioannides, and Christopher A. Pissarides GENERAL DISCUSSION All four papers were the subject of the discussion that follows. Gregory Mankiw opened with a question about one of the findings in Christopher House and Linda Tesar’s paper. They had found that imposing a labor or consumption tax and putting the proceeds toward paying off foreign creditors would severely depress GDP and, therefore, not raise as much revenue as one might hope. But Mankiw thought the correct parameter for evaluating this would be the uncompensated elasticity of labor supply, which was either close to zero or even backward-bending in the long run, and as a result it should not have a large effect on GDP after all. He wondered if their finding differed from this because, rather than following the standard assumption that income effects are similar to or somewhat larger than substitution effects, as he assumed, they had treated substitution effects as larger than income effects. Or was it because of Keynesian effects from sticky prices and, if so, how long do those effects last? In Mankiw’s view, the reason one cannot simply tax labor or consumption in Greece to pay off all the creditors is that there are limits to how much one can apply such methods and not because of Keynesian or neoclassical effects found in the modeling, such as income and substitution effects. He thought it probably has more to do with the political instability and tax evasion that would result at a certain point. Ben Friedman spoke up to comment on the political-economy implications of the Greek problem, including the threat it posed to the structure of the euro area. He was surprised none of the authors had mentioned the banks and the way they were bailed out. In his opinion, it was a great tragedy that the Europeans paid, and are still paying, a great price for the way they handled their bank bailout. In the United States, by contrast, the government let the banks absorb losses during the crisis and then recapitalized those that needed recapitalizing, including some very large ones such as Citibank and Bank of America. The Europeans shied away from that approach and instead moved many of the questionable debts, as soon as it became clear the Greeks might default, from the banks’ balance sheets to those of the central banks. Friedman thought Carmen Reinhart and Christoph Trebesch were right in concluding that debt relief is what has been needed all along. Private sector lenders know how to handle the situation of borrowers being in trouble and figuring out what to do with those debts, even though it may be a messy solution—it is after all what bankers get paid to do. But when debts are on the balance sheets of the official lenders, one is stuck in the fiction that they must never accept a default. [End Page 374] If the upshot were just a matter of some governments having to take losses that they did not want to admit, that might not have been too serious, Friedman argued, but now it has reached the point at which it has affected the high politics of the European Union (EU). He offered by way of analogy the situation in the Americas today in which Argentina is in default to many lenders, many of them domiciled in the United States. One cannot easily imagine President Obama being asked what his opinion is on Argentinian debt—he would probably respond by asking reporters why they thought he should have an opinion on the subject at all—and it certainly does not affect the high politics between Argentina and the United States. By contrast, up until the refugee crisis hit Europe, Angela Merkel, the Chancellor of Germany, was unable to hold any press conference without being asked what she thought about the Greek crisis. David Romer had three big-picture questions stemming from three of the papers. He commended Christopher House and Linda Tesar for their paper’s narrow focus on the feasibility...