Obama says Greece needs growth, not more austerity

As representatives of the new Greek government begin a round of visits to eurozone countries, President Barack Obama has suggested that Greece will not be able to recover from its economic crisis unless there is a let up in austerity policies.

“You cannot keep on squeezing countries that are in the midst of depression,” when CNN’s Fareed Zakaria asked him about the case of Greece. “At some point, there has to be a growth strategy in order to pay off their debts and eliminate some of their deficits.

“There is no doubt that the economy of Greece was in dire need of reform,” he said in the interview broadcast on Sunday. “Tax collection was famously terrible. In order for Greece to compete in the world markets, they had to initiate a series of changes.”

However, the US president underlined that it is very difficult to carry out reforms when a country’s economy has contracted dramatically. Greece saw almost a quarter of its GDP disappear between 2008 and 2014.

“It’s very hard to initiate those changes if people’s standards of living are dropping by 25 percent,” he said. “Over time, the political system and society cannot sustain it.”

Obama also made reference to the compromise that would be needed by the SYRIZA-led coalition and the eurozone to reach a deal that would keep Greece in the single currency.

“My hope is that Greece will remain in the eurozone,” he told CNN. “I think that will require compromise on all sides. When the financial crisis in Greece flared up a few years ago, we were very active in trying to arrive at some sort of accommodation. I think there’s recognition on the part of Germany and others that it would be better for Greece to stay in the eurozone than be outside of it and the markets will obviously be skittish about this.”

Obama suggested that the eurozone needed to do more to stimulate growth and repeated that country’s that have been through deep recessions, such as Greece, should be assisted.

“More broadly I’m concerned about growth in Europe. Fiscal prudence is important, structural reforms are necessary in many of these countries but what we’ve learnt in the US experience… is that the best way to reduce deficits and restore fiscal soundness is to grow,” he said.

“When you have an economy that is in freefall there has to be a growth strategy and not simply an effort to squeeze more and more out of a population that is hurting worse and worse.”