A Dívida Grega

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Why There Cannot Be Greek Debt Relief

It’s been a standard point for months now about the Greek crisis that there should be, in economic terms, some debt relief. Hack a haircut off the total amount that Greece owes. We all know that it won’t pay that total amount, there’s just about no way possible that it could. So, all the economically rational people have been saying that we should impose the haircut and cut that total amount of debt. Yet it hasn’t happened and it’s most unlikely that it will. For while this is the correct economic answer it’s also one that is politically almost impossible.

The reason for this is that the capitalists and the banks don’t actually own any of this debt (OK, some banks do, but it’s almost entirely Greek banks and if their holdings are haircut then they go bust and the Greek government then needs to prop them up again, achieving nothing). So, we can’t stick the bill with the capitalists or the banksters neither of whom would get a great deal of sympathy over their losses at the best of times. The money is owed to the taxpayers of other European Union and eurozone countries. And what’s more, those taxpayers know this. How much is owed to whom is listed on this nice little chart from Barclays:

So, here’s what the problem is. In order to solve the Greek debt problem something like 50% of that debt has to be written off. So, in the range of 1.5% to 2% of GDP for each of those countries listed. Now, that can be done of course. It’s not that they’ve then got to go out and collect another 2% of GDP in taxes from their own citizens to pay for it. Not in one year at least. The pain will be spread over the years: most of it would probably come from the European Central Bank returning smaller profits to the shareholders, those nations, over the years. However, the citizenry can read that chart as well as you or I can. And they know that writing down the debt means that they lose some of their money.

And 2% of GDP is a substantial sum. If we scale that up to the US economy that’s around $340 billion. We’re not talking about chopped liver here. Imagine President Obama going on TV and announcing that the US is going to give $340 billion to some foreign country (this is substantially more than all US aid to all countries in any one year). Or, more pertinently, imagine a politician who doesn’t like Obama going on TV and announcing that Obama has just given $340 billion to some foreign country.

Then add in that a number of those countries are currently poorer than Greece. Slovenia, Slovakia, Estonia for example. Now try to measure the political lifespans of people who say, right, we’re going to give $340 billion to peoplericher than we are.

It’s not going to work, is it? Which is why a haircut on that Greek debt, while it’s the economically rational thing to do, just hasn’t happened and is most unlikely to happen. That the money has already been lost by lending it to Greece in the first place is true. We all know it’s not going to be paid back so it is already lost. And we even know how it has been lost. The maturities (up to 50 years for some of this debt) and the interest rates (well, well, below market rates) mean that it’s being lost without people really seeing it being lost. But lost it is.

That doesn’t matter though. Tspiras and Syriza need, for political reasons, to see a cut in the headline amount of the debt. And for political reasons no one else can let them have that. For this very simple reason described above: a politician that did that would not be in office beyond the next election.

And to the larger point here: politics really does mean that at times we don’t do the sensible economic thing. Which is one of the reasons why I favour the small state: simply because it reduces the influence of politics over economics.

origem do artigo, aqui