At something like 175% of annual GDP it is easy to think that Greek public debt is out of control. But, let’s look at it another way. If Greek GDP had stayed the same as 2008 levels instead of falling by 30%, and also assuming current levels of debt, the ratio of debt to GDP would now be 175 x 0.7 = 122.5% Which might still be a little on the high side, for a non sovereign currency issuing country, but it would be looking a lot more manageable.
If Greece had instead grown its economy by the same amount, the ratio would be 122.5/1.3 or 94%. OK still a little high, maybe, but not the catastrophe the Eurozone has on its hands at the moment.
The key to managing Greek debts is help enable Greece to service them. There’s no real need to pay them off with interest rates as low as they are. That can be best achieved by growing the Greek economy. So what’s the problem? Why isn’t the Troika (the IMF, ECB and EU commission) encouraging the kind of economic policies in the Eurozone peripheral countries which would encourage growth rather than economic austerity which, in both theory and practice, can only produce economic contraction?
The Troika shouldn’t be in any sort of conflict with the Greek government. Both should be wanting exactly the same thing. Unless Greece comes out of the crisis ahead, no-one gets paid and so no-one else comes out ahead either!
PS If you agree with this post, please re-blog it, tweet the link, wp.me/p42SCg-Q7 , post up on your Facebook page, or whatever else you can think of to spread the message. No attribution is needed. We need to show solidarity with Greece right now. It may well be us next!
Modern Monetary Theory: Real Economics 
If the solution to Greece’s problem was that simple, a fair number of people would have tumbled to it by now. The problem with “growth” for Greece, if by that you mean a straight rise in demand inside Greece, is that that would suck in imports, driving Greece further into debt. Plus it would reduce or destroy the basic purpose of austerity in Greece, namely cutting costs in Greece and thus making Greece more competitive.
And before someone points out that the latter “austerity” cure for Greece involves big social costs, yes we’ve all worked that out. That’s an INHERENT problem of common currencies.
The solution to the 30’s depression was “simple” in the sense that Governments needed to get off the gold standard and start spending money to stimulate their economies. It took a major war to get them to do that though.
The solution to the EZ problem is equally simple but politically it is very difficult to make happen what needs to happen. Scrapping the Euro is one way. Greece on its own can’t fix its problems within the Euro unless it has the co-operation of the rest of the EU. That’s unlikely, to say the least, so a quick exit is their best option.
Reblogged this on Forgot About Keynes.