Joseph Stiglitz - Greece's creditors need a dose of reality – this is no time for European disunion
EU leaders continue to play a game of brinkmanship with the
Greek government. Athens has met its creditors’ demands more than halfway. Yet
Germany and Greece’s other creditors continue to demand that the country sign
on to a programme proven to be a failure, and that few economists ever thought
could, would, or should be implemented.
The swing in Greece’s fiscal position from a large primary
deficit to a surplus was almost unprecedented, but the demand that the country
achieve a primary surplus of 4.5% of GDP was unconscionable. Unfortunately, at
the time that the “troika” – the European commission, the European
Central Bank and the International Monetary Fund – first included this
irresponsible demand in the international financial programme for Greece, the
country’s authorities had no choice but to accede to it.
The folly of continuing to pursue this programme is
particularly acute, given the 25% decline in GDP that Greece has endured since
the beginning of the crisis. The troika badly misjudged the macroeconomic
effects of the programme they imposed. According
to their published forecasts, they believed that, by cutting wages and accepting
other austerity measures, Greek exports would increase and the economy would
quickly return to growth. They also believed that the first debt restructuring
would lead to debt sustainability.
The troika’s forecasts have been wrong, and repeatedly so.
And not by a little, but by an enormous amount. Greece’s voters were right to
demand a change in course, and their government is right to refuse to sign on
to a deeply flawed programme. Having said that, there is room for a deal: Greece has made
clear its willingness to engage in continued economic overhaul, and
has welcomed Europe’s help in implementing some of them. A dose of reality on
the part of Greece’s creditors – about what is achievable and about the
macroeconomic consequences of different fiscal and structural changes – could
provide the basis of an agreement that would be good not only for Greece, but
for all of Europe.
Some in Europe, especially in
Germany, seem nonchalant about a Greek exit from the eurozone. The market has,
they claim, already “priced in” such a rupture. Some even suggest it would be
good for the monetary union. I believe such views significantly underestimate the current
and future risks involved. A similar degree of complacency was evident in the
US before the collapse of Lehman Brothers in September 2008… Read more:
