Wednesday, January 28, 2015

Notes from Athens: The Syriza Policy Illusions

by Holger Schmieding


January 28, 2015

Just back from Athens, I feel almost compelled to shout it from the rooftops: it’s not about the debt. it’s about the economy, stupid – to borrow a phrase from Bill Clinton. In Athens, much of the discussions I had revolved around the debt: how much will Europe cut the burden now that Greek voters have asked for it? Or: wouldn’t it be cheaper for Europe to write off half its claims on Greece than to risk losing it all?


The new Greek government and its voters are in for a reality shock. The debate in Athens seems to suffer from four delusions.

Delusion 1: It’s about the debt, not the economy

Yes, Greek public debt is very high with 176% of GDP. But Europe and the IMF have already seen to it that the debt is bearable with low interest rates, long maturities and generous grace periods. The European promise remains: if Greece stays the course of supply-side reforms, the debt service will not suffocate Greece. In return for reforms, Europe can and will offer even lower interest rates and longer maturities. Asking for a cut in the nominal debt is pointless.


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