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The Greek Public Debt Problem

Listed author(s):
  • Michalis Nikiforos
  • Dimitri B. Papadimitriou
  • Gennaro Zezza

The Greek economic crisis started as a public debt crisis five years ago. However, despite austerity and a bold "haircut," public debt is now around 175 percent of Greek GDP. In this policy note, we argue that Greece's public debt is clearly unsustainable, and that a significant restructuring of this debt is needed in order for the Greek economy to start growing again. Insistence on maintaining the current policy stance is not justifiable on either pragmatic or moral grounds. The experience of Germany in the early post–World War II period provides some useful insights for the way forward. In the aftermath of the war, there was a sweeping cancellation of the country's public and foreign debt, which was part of a wider plan for the economic and political reconstruction of Germany and Europe. Seven decades later, while a solution to the unsustainability of the Greek public debt is a necessary condition for resolving the Greek and European crisis, it is not, in itself, sufficient. As the postwar experience shows, a broader agenda that deals with both Greece's domestic economic malaise and the structural imbalances in the eurozone is also of vital importance.

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File URL: http://www.levyinstitute.org/pubs/pn_15_2.pdf
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Paper provided by Levy Economics Institute in its series Economics Policy Note Archive with number 15-2.

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Date of creation: Feb 2015
Handle: RePEc:lev:levypn:15-2
Contact details of provider: Web page: http://www.levyinstitute.org

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  1. Gulati, Mitu & Trebesch, Christoph & Zettelmeyer, Jeromin, 2013. "The Greek Debt Restructuring: An Autopsy," CEPR Discussion Papers 9577, C.E.P.R. Discussion Papers.
  2. Michalis Nikiforos & Laura Carvalho, Christian Schoder, 2015. "“Twin deficits” in Greece: in search of causality," Working Papers, Department of Economics 2015_09, University of São Paulo (FEA-USP).
  3. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
  4. International Monetary Fund, 2010. "Greece; Staff Report on Request for Stand-By Arrangement," IMF Staff Country Reports 10/110, .
  5. Ardagna, Silvia, 2004. "Fiscal stabilizations: When do they work and why," European Economic Review, Elsevier, vol. 48(5), pages 1047-1074, October.
  6. Dimitri B. Papadimitriou & Michalis Nikiforos & Gennaro Zezza, 2013. "The Greek Economic Crisis and the Experience of Austerity: A Strategic Analysis," Economics Strategic Analysis Archive sa_jul_13, Levy Economics Institute.
  7. Timothy W. Guinnane, 2004. "Financial Vergangenheitsbewältigung: The 1953 London Debt Agreement," Working Papers 880, Economic Growth Center, Yale University.
  8. Dimitri B. Papadimitriou & L. Randall Wray & Yeva Nersisyan, 2010. "Endgame for the Euro? Without Major Restructuring, the Eurozone is Doomed," Economics Public Policy Brief Archive ppb_113, Levy Economics Institute.
  9. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  10. Ardagna, Silvia, 2004. "Fiscal Stabilizations: When Do They Work and Why," Scholarly Articles 2580047, Harvard University Department of Economics.
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