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Discussing the Greek Crisis: is debt relief inevitable?

The Florence School of Banking and Finance organised on the past 24th of July an online discussion about Greek Crisis. Professors Evi Pappa (EUI), Christos Hadjiemmanuil (University of Piraeus), Thomas Cooley (NYU Stern) and Ramon Marimon (EUI) have been discussed the economic ramifications of the new bailout deal. 

  • Is debt relief inevitable?
  • Does is the crisis mean the banking union was too little too late?
  • Has this crisis exposed a flawed Economic and Monetary Union? And who is ultimately responsible for cleaning up this mess?

Highlights of the discussion:

 

Thomas Cooley

“I know that 70% of the (Greek) population doesn’t want to exit the euro but the view from the rest of the world seems the be that it’s inevitable. If that happens it undermines the idea that the European Monetary Union is forever, that it’s sustainable.”

“I don’t think there’s any rational economist at the this point who doesn’t think it’s not necessary to get the level of debt down to a sustainable level.”

“The run on the banks is symptom of the larger crisis which is a fiscal crisis, which wasn’t addressed properly in 2010 or earlier. The extent of the crisis in Greece reveals a fundamental flaw in the European Monetary Union that has to be addressed. Whatever happens in Greece the tension is going to next focus on other countries which have this exaggerated unhealthy relationship between the banking sector and the sovereigns. That has to be addressed if the monetary union is going to prosper in the future. I’m not very optimistic that it will be addressed.”

“I was struck by the fact that in the previous (Greek) government and under the previous program, austerity did work. They managed to grow for at least one quarter and display a primary surplus and that seemed to me like success, but the political cost of that success seems to have been the election of the Tsipras government and everything seems to have gone south since then”

 

Evi Pappa

“I don’t think there are any economists who don’t think there is room for debt relief”

 “Giving debt relief under this political uncertainty is going to be costly”

“Without the banking crisis it would be even easier to go for economic programs and reforms because the people would be more willing to accept it because in Greece the perception is that we’re doing all the austerity measures and sacrifices to save  the banks.” 

The word Troika, it’s not the first time it’s been used in Greece. After the treaty of Constantinople in 1852, after the war with Turkey, the word Troika was first used for the board of three advisors to the newly elected King Otto who was imposed on Greece because hiding debt to the great powers of Russia and Britain. The levels of Greek debt at the time were 215%.”

 “I think that the people in Greece and their voice should be somehow respected. The people in Greece voted no, they didn’t want more austerity measures and it looks like nobody listened to what they said. I think that at the moment Greece has to believe in Tsipras. And I really want to believe very much in Tsipras because it is the only hope that we have… If Tsipras will commit to structural reforms and get rid of the leftist part of his government… then I think that the Troika could advise him on where to go. Because so far the troika hasn’t worked in Greece.”

 

Christos Hadjiemmanuil

The whole point about the banking union was that bank recapitalisation should take place directly at the European level in the hands of the ESM… we did not actually move to single unified bank resolution financing which you can see in the Greek program.

“It has to be said that in this latest round that the scale of the financing problem has increased because of the banking connection. Over the last half year greek banks have been effectively losing liquidity by the day”

 

Ramon Marimon

“In a proper working banking union, you will see some banks going under. The problem here in Europe you don’t see that.”

“I think that will be the outcome of this crisis, that we will move to a more integrated fiscal and monetary framework.”

 

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