Greek debt

 Lawrence Zammit's article on The Times of Malta

This week a number of issues have arisen which all require a comment. I admit that because of the need for immediacy in comment and not just in delivering the news, there is the risk that these issues will appear irrelevant in a couple of weeks time. However pride of place must be given to the evolving situation in Greece and the plans of the new Greek government, led by the radical leftist Alexis Tsipras, for the country’s economy.

The main electoral pledge of the new Greek government was that there would be an end to economic austerity in the country. It needs to be remembered that the austerity programme was imposed on the country by the requirement to put public sector finances in order.

It also needs to be remembered that government’s finances were in disarray in that country because of a bloated and overpaid public sector and steady diminution of the country’s productive capacity. A third point to remember is that holders of bonds issued by the Greek government already had to accept a reduction in the value of their holdings.

The latest plan of the new Greek government (and I write “latest” because the Greek government has changed its position a couple of times already) is to replace some of the debt held by other EU member states (including Malta) who would only be paid of the Greek economy was growing and to replace the binds held by the European Central Bank into perpetual bonds.

Neither of the two proposals would mean an actual reduction of the headline debt (as the Greek government had initially planned), but they would simply lift some of the burden of repaying it.

However one wonders whether the real issue is the level of Greek debt (which is admittedly unsustainable in the current circumstances) or the lack of any willingness to undertake structural reforms. This lack of willingness to implement structural reforms was evident with the outgoing government who imposed austerity measures while never tackling the country’s ability to produce wealth. It was also evident in the decision of the incoming government to halt the privatisation process of the ports.

Irrespective of the level of debt, the Greek government has not said anything about how to tackle the country’s elites, how to stop them taking money out of the country (although probably it has all gone by now) and how create jobs for young people. A policy to increase public sector salaries may improve living conditions in the short term. However it does not create jobs.

The new Greek government is claiming that it wants a win – win situation with its creditors. However one is starting to suspect this win – win situation is actually a commitment by the Greek government that it would not default on its debt if it is allowed not to pay it.

There is no doubt that Greek public debt needs to be put on a sustainable path. Equally there is no doubt that action needs to be taken to address the social conditions of a majority of the Greek population that is now either experiencing poverty or is at a risk of doing so. However these objectives can only be achieved through structural reforms that can generate strong economic growth.

I strongly believe that forgiving Greek debt should not even be a point of discussion. The win – win situation that may be advocated is a renegotiation of payment terms only if structural reforms are implemented. Forgiving Greek debt would mean punishing thrift and rewarding profligacy. Malta and other countries have managed to overcome the challenges of the difficult international economic situation because they have been virtuous. Forgiving Greek debt would devalue the sacrifices that we and other countries have made to keep public finances in check while generating economic growth.

PS: I must comment on the new location of the Monti Stalls in Valletta. The issue is not the stalls themselves; however the location. There is consensus that Malta should be projected as a centre of excellence. Will having such an open air market contribute to the image of excellence? Is the presence of an open air market at the entrance to the city “built by gentlemen for gentlemen” and where hawkers sell just imported goods, compatible with its designation as the European Capital of Culture? Is such an open air market the hallmark of a first class economy?

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