Reforms or bankruptcy?

Greece is at a decisive moment that will determine its future: prosperity in a dynamic European economy or poverty and isolation for decades. Holding a huge debt that it cannot service, it is faced with the dilemma of defaulting, or accepting to carry out an economic program of structural reforms, privatization, efficient tax collection, and shrinking of the public sector. Such a program has been proposed in general terms and is financed by its EU partners and the IMF. Given the catastrophic effects of a unilateral suspension of debt payments, there is no doubt that Greece has to choose the alternative of reform no matter how difficult.

This short article is signed by 19 Greek economists, including most of the founding members of this blog. The full article here.

This entry was posted in Banking and finance, Europe, Macroeconomics, Public finance. Bookmark the permalink.

9 Responses to Reforms or bankruptcy?

  1. Ioannis Spyridopoulos says:

    Quoting Alex, “As economists we all understand that capitalism involves the taking of risks and the acceptance of losses when bad investment decisions are made. So let all those who loaned money to Greece take some losses so that they will be careful next time instead of trying to make her new loans now and redressing existing loans”. This captures the essence of my point about all the public “menace” Greece is receiving. I wonder, why not this menace on the 2008 financial crisis

    Extending to what Vassilios is saying (also mentioned in another article in this blog) I think everybody agrees on the fact that this is a pan-European political crisis on the EMU building foundations. As said, reforms AND bankruptcy is what I expect.

  2. A. Dereklis says:

    Reforming is synonym to evolution and has as basic prerequisite first of all common sense, in our days absent in Grece, and social coherence, never existed in Greece.
    Academic profs tend to idealize their environment and make suggestions based on “ceteris paribus” conditions, in vulgo useless non-delivering and non-performing measures. Evolution is passe. We need revolutionary but bloodless measures:

    1. Default with 70 – 80 %
    2. Change rapidly and radically mentality of the greek “Citoyen”

    The question for us, Greeks or ex-Greeks abroad, is how can we contribute to save this nation. All important greek political personalities were born outside Greece (Benizelos, Karamanlis, Solomos e.t.c.). Locals are condemn to fail!

  3. Evangelos says:

    Dear Dimitri Vayanos,

    We agree,but ECB doesn’t agree.
    They are not ready to discuss a dept relief,and it is doubtful if they ever will be ready.I assume that they fear of a huge domino and they prefer to wait for “better days” or something like that.
    In the meantime,the Greek government has…relieved itself from its internal dept and it continuously raises the taxes,a recipe for total internal destruction of the local economy.

  4. Dimitri Vayanos says:

    Dear Evangelos,

    I think that the idea of trading debt relief for reforms is excellent. Such a trade would benefit Greece, and it could also benefit its EU partners. Costas Meghir, Nikos Vettas and I argued in favor of this solution in an op-ed in Kathimerini in May. See the post on this blog.

    Dimitri Vayanos

  5. Evangelos says:

    Greeks want to commit suicide,its 100% clear.
    Only way to stop them is a trade, dept relief for reforms,anything else will fail sooner or later (probably sooner).So if the EU cannot afford a dept relief,I really see no solution.

  6. G.S. says:

    Talking about reforms: A proposal by my side on fiscal framework. Maybe you will find it interesting:

    Thank you

  7. Alex Anas says:

    While I fully agree that Greece is in need of deep and comprehensive reforms and that the importance of this is paramount for the survival of the country, I also know that these reforms were called for 10, 20 and 30 years ago.

    Where were we then?

    The current problem should not be solved by reforms alone. It must include debt restructuring, debt forgiveness and the payment of war reparations and the war loan repayment by Germany, alongside a more efficient and effective system of taxation in Greece.

    With regard to Germany’s obligations, see the interview of a German Albrecht Ritschl historian by Der Spiegel Online on June 21, 2011.,1518,769703,00.html

    As economists we all understand that capitalism involves the taking of risks and the acceptance of losses when bad investment decisions are made. So let all those who loaned money to Greece take some losses so that they will be careful next time instead of trying to make her new loans now and redressing existing loans.

    As economists we all also understand the importance of designing mechanisms (in a chaotic conglomerate of nations such as the EU) that will deal with crises in an organized manner and that is aimed to preserve the unity and long term growth of the continent in the future. Such mechanisms should be designed now and readied to be tested in the next crisis.

    So let the EU bankers and heads of state get down to serious business and design those mechanisms instead of kicking the can down the road.

    The correct call for action, in my opinion, is not “Reform or Bankruptcy” but it is “Bankruptcy AND Reform”.

    Your effort is very much appreciated but should be directed equally to the EU and to Germany in particular, not just to Greece. And I am afraid the young Greek people who are now, once again prone to emigrate taking with them the human capital that Greece so badly needs, will see this article as one-sided and calling only for half of the needed action. The youth does not see why they should be saddled with the errors of corrupt politicians and careless bankers including those of Greece.

    Alex Anas
    Professor of Economics
    State University of New York at Buffalo
    Amherst, New York, 14260 U.S.A.
    Home Page:

  8. Συμφωνω με οσα λετε σχετικα με το τι πρεπει να γινει, αλλα διαφωνω στο ‘δια ταυτα’. Το θεμα ειναι, τα συγκεκριμενα μετρα που προτεινει η Κυβερνηση με το μεσοπροθεσμο προγραμμα, κινουνται στην κατευθυνση αυτη; ΟΧΙ ΒΕΒΑΙΑ. Επαναληψη μιας συνταγης που εχει αποτυχει. Ληστρικη φοροεπιδρομη παλι σ’ αυτους που μια ζωη πληρωνουν, ενω οι φοροφυγαδες ειναι παλι στο απυροβλητο. Ο προυπολογισμος του μεσοπροθεσμου προβλεπει ΜΗΔΕΝ εισπραξη νεων φορων απο φοροδιαφευγοντες. Ο δημοσιος τομεας θα συρρικνωθει; Πολυ αμφιβαλλω. Θα γινουν οι αποκρατικοποιησεις και μαλιστα σωστα; Να μου γραψετε. Οι μαυρες τρυπες των ΔΕΚΟ θα κλεισουν; Δεν το βλεπω. Οι παροχες προς ΓΕΝΟΠ-ΔΕΗ και οι σπαταλες των νοσοκομειων θα σταματησουν; Ουτε και αυτο. Ισα-ισα, οι αυξησεις φορων και οριζοντιες περικοπες στα εισοδηματα ΧΩΡΙΣ ολες τις ως ανω διαρθρωτικες αλλαγες θα οδηγησουν με μαθηματικη βεβαιοτητα στον στραγγαλισμο της Ελληνικης οικονομιας και την επακολουθη βεβαιη αναδιαρθρωση του χρεους, και απορω πως οικονομολογοι του δικου σας κυρους δεν το βλεπουν αυτο, πολλω μαλλον γιατι δεν το καταγγελουν ευθεως και χωρις περιστροφες (αλλα περνατε την Κυβερνηση εξ απαλων ονυχων).
    Λετε οτι μια πτωχευση θα οδηγησει σε μειωσεις μισθων και συνταξεων 25%. Γιατι, ειναι πολυ το 25%? Ηδη πολυ περισσοτερο εχει μειωθει ο μισθος μου απο περσι και αν βαλεις και οσα προβλεπονται αν περασει το μεσοπροθεσμο σε συνδυασμο με νεους φορους πασης φυσεως κλπ, τοποθετω την ουσιαστικη συνολικη μειωση πανω απο 40%. Αν ειναι ετσι, σαφως προτιμω την πτωχευση!
    Οπως ελεγαν οι Financial Times, μας βαζουν να διαλεξουμε μεταξυ ενος ψεματος και της καταστροφης. Και δη ενος ψεματος που θα οδηγησει ετσι κι αλλοιως στην καταστροφη. Ισως μας αξιζει ως Εθνος που μας βαζουν ενα τετοιο διλημμα, αυτο παιζεται και σηκωνει κουβεντα. Εγω παντως εαν το διλημμα τιθεται ετσι, σιγουρα δεν μπορω να διαλεξω το ψεμα. Καλυτερη μια αναρχη πτωχευση μια ωρα νωριτερα, ΕΔΩ ΚΑΙ ΤΩΡΑ, να ξεμπερδευουμε και απο την ταλαιπωρια και την ξεφτιλα, και να ξεκινησουμε σωστα απο μηδενικη βαση. Και βεβαια ο,τι ηθελε προκυψει για το ευρω, τις διαφορες τραπεζες στην Ευρωπη και αλλου, τους πιστωτες, το παγκοσμιο χρηματοπιστωτικο συστημα, τις αμερικανικες συνταξεις, κλπ- δεν με απασχολουν ολα αυτα ποσως, οπως δεν τους απασχολω εγω αλλωστε.
    Με το σκεπτικο αυτο, αν και συμφωνω με τα μετρα που προτεινετε, εαν ημουνα σε θεση να ψηφισω στη σημερινη Βουλη, θα ψηφιζα ΟΧΙ.
    Χαριλαος Ν. Ψαραυτης
    Καθηγητης ΕΜΠ

  9. Vassilios Dascalopoulos says:

    Interesting analysis that unfortunately has not reached the core of opinion leaders and/or policy makers in a country that is doing its best to commit suicide!

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