Tuesday, February 10, 2015
Will Greece Ever Get Out of Debtor’s Prison?
New York Times
February 10, 2015
The efforts of the new Greek government to write off a portion of its debt are being cast by powerful European policy makers as a bid for “debt forgiveness.” But the whole concept of “forgiveness” implies that there is a magnanimous creditor and a profligate borrower, and that’s just not true. Greece now has more debt than it can ever repay, and lenders share some of the blame for this.
Moreover, calling debt reduction “forgiveness” reinforces the kind of moralizing that has blocked a sensible resolution to the eurozone crisis since it began in 2010. In the German telling, in particular, Greece lied about its fiscal condition in order to take on excessive debt and must be punished with backbreaking austerity.
But reckless lending and reckless borrowing went hand in hand in the years leading up to the euro crisis. Greek officials did indeed use financial tricks — developed by Wall Street — to mask the size of budget deficits. Still, even before Greece joined the eurozone, it was clearly living far beyond its means. International lenders knew or should have known this; they were not defrauded so much as willfully blind, about deficits and also Greece’s inability or unwillingness to collect taxes.