Silly Debts and Political Courage

The stage is set. The drama enters a critical moment. The roles are well distributed. There are the left radicals from Syriza who are not a bit interested to give in and rather stick to political principles. On the other side are the serious and adult (to use Langarde’s label) representatives of the Institutions who would like to avoid the worst and offer one compromise after the other. Joking aside, the postering on both sides is impressive and I wonder whether all actors still are able to differentiate between spin and fact. It is probably not by chance that the Greek debt Truth Commission just published its report, and came to condemning findings as Andy Watts summarizes :

”Greece’s IMF debt is illegal, illegitimate and odious
– its ECB debt is illegal, illegitimate and odious
– its EFSF debt is illegal, illegitimate and odious
– the bilateral loans are illegal, illegitimate and odious
– and, you will no doubt be surprised to hear, its debt to private creditors is also illegal, illegitimate and odious.”

This verdict is a bit silly and besides the point. Sure, there is no doubt that creditors up until 2010 handed out credits to all kind of Greek economic actors without following prudent rules. Sure, it is still scandalous that the ECB and the Commission with strict orientation given by the Council decided to bail out the creditors, and thus to socialize private losses. Sure, we know by now that those policy actions actually severed the crisis rather then offered any solution. Sure, in this respect the Greek position to end this policy path makes sense. Sure, Greece needs a substantial debt restructuring, a.k.a debt cut in order to have a chnace to return to economic growth. And yet, it is of no help at all to engage in moral outcry in order to get rid of debts . All this could be handled with in a serious way by taking into consideration, for example, research insights by – the IMF. It is a well-established fact, maybe not well recognized, though, that debt-ridden economies are hampered by deleveraging and insufficient demand effects that makes economic growth sub-par. Thus the need to deal with the debt overhang directly.

Given the bad reputation of the Greek government and more so the political distrust and abomination on the sikde of the creditors and their political audiences, such a debt cut is difficult to sell. Similar holds for the Greek government. It would be silly to neglect the clientelistic and paternalistic state of the Greek political-economic system, and creditors need serious and reliable assurance that this system is the poliotical object of drastic change. It is the job of Tsipras to sell to the Greek voters the kind of essential changes, and the costs involved. Are p[olitical classes on both sides of the table up to those challenges? Reading some of the deeply provincial and narrow-sighted statements, makes me doubt. But then again, Monday will show about the willingness and ability of leaders to compromise, and at the same to set the Eurozone on a long-term sustainable trajectory.