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Guntram Wolff is director of Economic Science Institute Bruegel in Brussels. On Thursday, Eurogroup decides on payment of last instalment from third bailout package. The Greek government is also hoping for easier credit conditions.
Eight years after start of first aid programme for Greece, it is time for Greece to stand on its own feet again. DieEurogruppe is to decide today end of third aid programme and define DieModalitäten for time reafter. The aim should now be to decide einentragfähigen exit from this very painful time for all sides – in such a way that future generations will no longer have to deal fortlaufend with subject.
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is director of Bruegel Economic Research Institute in Brussels.
The first aid program in year 2010 started in Einerbeispiellosen situation. The budget deficit exceeded 15 per cent desBruttoinlandsproduktes 2009 and financed a unproduktivenStaatssektor in which salaries of officials were, for example, disproportionately higher.
The consequence was an inevitable and hard austerity program. Expenditure had to be reduced and revenue increased. Auchgrundsätzliche, structural weaknesses in economy had to Angegangenwerden. But n government under SozialistischenMinisterpräsidenten Giorgos Papandreou grabbed many reforms only half-heartedly. The vorgeschriebeneSparkurs, on or hand, was respected.
However, Syriza-Regierungunter Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis 2015 turned against this austerity. The conflict between Greek government and Eurogroup escalated. Greece’s exit from programme was delayed again. In particular, loss of confidence in this episode led to less investment undWachstum in Greece.
But mistakes of past eight years should not only be found in Greece. From outset, International Monetary Fund has classified dieSchuldenquote as unsustainable. Neverless, at beginning of first programme, re was not a debt cut – country was imposed stattdessenein impossible austerity program. The result was an even stärkererEinbruch of gross domestic product, which would not have been necessary.
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The debt cut came after all, but only in year 2012. DieBanken waived half of ir claims against Demgriechischen state. Private creditors, especially in central Europe, wurdenaber by late debt cut only limited in adjustment costs involved. It is clear that a previous debt cut could have improved GriechenlandsSchuldenlast.
Anor problem is that, until now, Eurogroup still does not geeinigthat on a long-term credible perspective for Greece. In order for Greece to grow steadily in long term, people, companies and investors must trust in country’s future viability. What is important is not only that government is stable undkompetente policy. Just as central is that country’s debt is viable.
But that is not case so far. According to analyses of IWFund calculations of our institute, sustainability of debt depends decisively on future growth. But without certainty about dielangfristige viability, investments in country will einerRisikowette. Then growth will remain rar weak – a vicious circle. Dementsprechendbleiben Financial markets are more sceptical and continue to demand a erheblichenRisikoaufschlag of ten-year government bonds of about four percent. BeimAusstieg from programme it is refore necessary to break this vicious circle.
