The Endgame in Greece

Jeffrey David Sachs (/ˈsæks/; born November 5, 1954) is an American economist and director of the Earth Institute at Columbia University. He is widely considered to be the world's leading expert on economic development and the fight against poverty.

Author of The Price of Civilization: Reawakening American Virtue and Prosperity. 

June 16, 2015 

The Endgame in Greece

Greece is refusing to acquiesce to demands by its creditors that it cut payments to the elderly and raise the value-added tax on their medicine and electricity.

Europe’s demands – ostensibly aimed at ensuring that Greece can service its foreign debt – are petulant, naive, and fundamentally self-destructive. In rejecting them, the Greeks are not playing games; they are trying to stay alive.

Whatever one might say about Greece’s past economic policies, its uncompetitive economy, its decision to join the eurozone, or the errors that European banks made when they provided its government with excessive credit, the country’s economic plight is stark. Unemployment stands at 25%. Youth unemployment is at 50%.

Greece’s GDP, moreover, has shrunk by 25% since the start of the crisis in 2009. Its government is insolvent. Many of its citizens are hungry.

The Greek government has asked Europe to swap existing debts with new debts to lock in low interest rates and long maturities. It has also requested that interest payments be linked to economic growth. (It has notably not asked for cuts in the face value of its debt).

But debt relief of this sort vis-à-vis European governments or the European Central Bank has been kept off the table.

Almost a century ago, at World War I’s end, John Maynard Keynes offered a warning that holds great relevance today. Then, as now, creditor countries (mainly the US) were demanding that deeply indebted countries make good on their debts. Keynes knew that a tragedy was in the making.

“Will the discontented peoples of Europe be willing for a generation to come so to order their lives that an appreciable part of their daily produce may be available to meet a foreign payment?” he asked in The Economic Consequences of the Peace. “In short, I do not believe that any of these tributes will continue to be paid, at the best, for more than a few years.”

The Greek government is right to have drawn the line. It has a responsibility to its citizens. The real choice, after all, lies not with Greece, but with Europe.