Greece cannot rebound without debt cut, says SYRIZA economist

Struggling Greece will never recover without a generous debt cut, despite what the country’s creditors might think, the politician likely to become the next finance minister said Tuesday.

“To promote reforms one must settle the debt issue,” Yiannis Dragasakis, the senior economist at anti-austerity party SYRIZA who are favorites to win Sunday’s general election, told AFP in an interview.

“The possibility of recovery is limited” because Greece is laboring under a debt of nearly 320 billion euros ($371 billion), or 175 percent of national output, he said.

SYRIZA, who have a steady lead of around three points in pre-election polls, are trying to strike a delicate balance between fiscal diligence and debt forgiveness.

The left-wing party’s plan to renegotiate Greece’s multi-billion bailout with the European Union and the International Monetary Fund is already raising hackles among the country’s creditors.

IMF chief Christine Lagarde on Monday warned of “consequences” if European countries try to renegotiate their debts.

“Collective endeavors are welcome but at the same time a debt is a debt and it is a contract,” Lagarde told the Irish Times during a visit to Dublin.

“Defaulting, restructuring, changing the terms has consequences on the signature and the confidence in the signature,” she said.

However the IMF and EU required Greece to restructure its debt with private creditors in 2012 as part of its second international bailout, which has helped Athens repair its public finances.

Greece is now running a budget surplus if debt service costs are not considered.

The writedown in the value of the debt to private creditors plus the 240-billion-euro rescue package means that Greece is now mostly into debt to the IMF and its eurozone partners, with the heaviest repayment period still some years off.

Dragasakis, a 68-year-old moderate who oversaw SYRIZA’s economic blueprint, says the leftists are not just thinking about helping themselves.

“Our proposal does not solely concern Greek debt, but the problem of excessive debt facing many European countries,” he said.

“It is necessary to adjust the debt because it is not currently sustainable. The Greek economy has suffered a disaster and its capabilities are currently limited.”

Dragasakis is the only one of SYRIZA’s leaders to have prior government experience, having briefly served as deputy finance minister in a five-month unity government in 1990.

He argues that debt reduction is essentially dictated by the euro convergence criteria — the so-called goals signed in 1992.

“If we want to respect Maastricht goals — which require that debt be reduced to 60 percent of GDP — we see no other way but to examine the issue on a long-term basis through a conference. If there are other ideas leading to the same result, we would discuss them in a positive manner.”

SYRIZA leader Alexis Tsipras has called for a conference of creditors and frequently refers to the London Conference in 1953 which cancelled German debt after World War II.

Dragasakis readily acknowledges however that reducing the debt will eventually mean little without reforms to combat endemic corruption in the Greek public sector and civil bureaucracy.

“Even if the debt were zero, we would have problems without the necessary reforms in the state and civil administration.”

SYRIZA wants to erase over 50 percent of Greece’s debt, and divert funds that are currently being used to repay bonds to help the country’s economic recovery.

The party maintains that Greece’s creditors will agree to renegotiate the bailout when faced with a leftist government elected with a strong popular mandate.