Eurozone finance ministers have been struggling to agree on releasing the latest tranche of Greece’s loan, not because they wish to create even greater anxiety in this country but because Germany and other creditors are struggling with the idea that they will have to pick up a greater burden if they wish to save the euro. The IMF’s insistence on measures that will make Greece’s debt sustainable by 2020 is forcing the Europeans to finally solve a problem that has been going from bad to worse. The future of the eurozone and the European Union itself is at stake -– it is natural that there should be debate and delays.
The measures that will make Greece’s debt sustainable will have to apply to any other eurozone countries that find themselves in need. A mechanism, a framework for dealing with such problems will have to be established. During the three years of the Greek crisis quite a number of mechanisms were established (primarily the European Financial Stability Facility), while debtor countries applied harsh austerity and undertook reforms. The results, however, have not justified the sacrifices of those in the program nor creditors’ expectations. It is obviously time for more creative measures.
A new debt reduction through a haircut on our debt toward countries participating in the bailout is not on the cards: It would entail a massive political cost for governments that assured voters their money would not be lost, and it would make the Greeks enemies of every taxpayer in the countries that extended loans. Other proposals, though, include a reduction of debt through a drastic reduction of interest, returning to Greece the profits made by central banks and the ECB on their Greek bonds (through their governments rather than the banks themselves), and the repurchase, at low prices, of bonds from private investors.
To bring down debt from the 190 percent of GDP that is forecast for next year to 120 percent in 2020, some of the above measures will have to be adopted immediately. This will add more to the burden of creditor countries but also effectively reduce that of debtors. Given this, it may no longer be taboo to re-examine the possibility of mutualizing debt through eurobonds, of allowing quantitative easing. Such measures can be dangerous, but at present they appear far less so than the trap of ever greater debt.
The eurozone’s future is being decided at the same time that negotiations are being held on the EU’s budget for 2014-20 -– talks that will determine relations between all member states, whether in the eurozone or not. It is a time of difficult choices, but also for daring proposals and visions. At least we can say that Greece has held up its side of the bargain and, with the tough decisions we have taken, we are still at the negotiating table.