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Tuesday, January 13, 2015

Lorenzo Bini Smaghi on Sustainability of Greek Debt

"Overall, Greece’s debt does not look as bad as the simple “175 per cent of GDP” ratio would suggest. The request for a substantial debt cancellation can thus hardly be justified on the basis of sustainability alone. It seems rather to be aimed at creating the room for financing a more expansionary fiscal policy. This would entail the risk, however, of going back to the pre-crisis policies of rising public spending and giving up all the reforms that are needed to improve the competitiveness of the Greek economy so as to make it a lasting member of the monetary union. The difference would be in the financing, which would come this time from other eurozone taxpayers, rather than the capital markets. Unfortunately, experience suggests that the outcome of such a policy would most likely be the request for a new debt cancellation within a few years".

15 comments:

  1. I read his article. His two main points are that government debt is refinanced (rather than paid), and that the Greek economy is gonna grow rapidly.

    It's up to the official-sector to refinance Greek debt, but I'm not so sure that Greece is gonna grow rapidly.

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  2. Take a look also here:

    Andrew Watt, Is Greek Debt Really Unsustainable?, January 2015

    Watt argues that it is far from clear that Greek debt is indeed unsustainable. According to Watt, fiscal and monetary policy changes would significantly help Greece to reduce its debt burden and make some sort of debt restructuring unnecessary.

    Click here for the paper:
    http://www.socialeurope.eu/wp-content/uploads/2015/01/OP6.pdf

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  3. http://www.bbc.co.uk/programmes/p02ghvck

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    1. I had seen this interview but I was not impressed. The argument "Greece can't pay" is nothing but a populist slogan. The vast majority of countries cannot pay their sovereign debt. The difference is that stronger countries can refinance their debt when it becomes in markets. If the US or Germany could not refinance their debt, they would default within a short period of time.

      THE PRINCIPAL ASPECT OF SOVEREIGN DEBT IS THAT IT CAN BE SERVICED, NOT REPAID!!!

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  4. Ι am sorry, i was in a hurry, so my intent wasn't obvious. I posted this to show the contrast, because the gentleman is a SYRIZA candidate and shows what's SYRIZA's central campaign message in Greece.

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  5. Dragasakis (SYRIZA's most probable next finance minister): There must be a deal until July, or we won't play ECB in July. He wants: debt at 60%, with european development plan, growth clause in debt repayment, so that any primary surplus can be used for public investmets. Otherwise, as he notes "SYRIZA's governing plan cannot be implemented".

    If by July there is no agreement and Greece is blackmailed, Greece will not remain idle and "there will be a european crisis".

    http://www.skai.gr/news/politics/article/273299/dragasakis-an-den-peisoume-tous-europaious-tha-anazitisoume-gia-to-hreos-mia-lusi-apokleistika-elliniki/

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    1. Below is what I wrote about Mr. Dragasakis before the June 2012 election.

      http://klauskastner.blogspot.co.at/2012/06/mr-yannis-dragasakis-syriza-is-right.html

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    2. Mr. Kastner,

      I agree on your assessment on Mr. Dragasakis. You know why he isn't your typical "SYRIZA"? Because he has actually acted as vice finance minister before, in 1989 in the "ecumenical" goverment" for 1 year. So he is the only one in there who has actually previous governing experience.

      The big question now is this. Will Draghi be good on his promice to stop liquidity to the greek banks, if Greece remains with no memorandum until July? If yes, the greek banks will run out of money much sooner than July. Today 700 meur were withdrawn from the greek banks, mainly from small bank accounts.

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    3. "Otherwise...SYRIZA's governing plan cannot be implemented"
      That's tough luck for Syriza. High time for a plan B. No "plan 9 from outer space", pls!

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  6. Well, at least, with few exceptions, it seems that Tsipras will have a good negotiation team. According to an article, Mr. Dragasakis will be the next finance minister. The rest of the negotiating team will be: Mr. Stathakis, Prof. Varoufakis, Louka Katseli (long time PASOK member and George Papandreou's minister, that jumped ship and is now in cooperation with SYRIZA), Rania Antonopoulou (http://www.levyinstitute.org/scholars/rania-antonopoulos) , Prof. Kostas Melas, Prof. Charalambos Gotsis (although not SYRIZA, a personal friend of Mr. Dragasakis), Prof. James Galbraith (friend of Prof. Varoufakis).

    It's unofficial, but the source is a fiercely pro-SYRIZA (and also pro-Golden Dawn ironically) banking site, so it seems plausible.

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  7. I'm looking forward to the negotiations and the reports of them from the various parties. Any negotiation, with 7 Greek participants, will last forever, but they will be great fun. Just imagine at least 8 agendas and MOM's (unsigned).

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    1. My information says that Greece's negotiating team will consist only 4 members. Look forward to finding out whether my source was reliable.

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  8. It's still going to be great fun.Bear in mind that Syriza has now said they will not negotiate with the Troika but with the individual parties to the agreements. That would mean IMF, ECB and 18 nations, some of which have already said that they will not participate in that sort of negotiations. Unsigned MOM's, my kind of humor.
    Lennard

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    1. My impression is that SYRIZA's international marketing (mostly via Varoufakis and Galbraith) has been quite successful. Above all Anglo-Saxon media and economists seem to be sold on Alexis Tsipras. Even some Germans are (Münchau of FT). So, it seems that Tsipras has a lot of the international intelligentia behind him. What will be fun to watch is whether the international intelligentia can persuade those who have to come up with the money.

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  9. Exactly! Thanks for this information. I'm glad to see an expert confirms what I figured out myself. What would a debt reduction be good for? The Greek government hasn't paid anything back yet, it doesn't even pay all interests so far. Obviously, as evident in both ND and Syriza programs, this is about being able to fund election gifts! Not a good idea, really.

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