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Commentary & analysis with a focus on European economic policy

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Is the troika responsible for the Greek fire tragedy?

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The horrific forest fires near Athens, with terrible loss of life, have led to claims that the austerity measures imposed on Greece by the troika damaged the capacity of the Greek fire-protection services. Part of the blame for the horrific deaths and property damage in the Greek fire tragedy is therefore to be borne by the troika.

Is this true? It is a complex question which, I understand, is to be part of a formal investigation. That is right and proper. A crucial issue is clearly to what extent decisions on the mix of fiscal measures, for a given amount of fiscal consolidation, were taken by the Greek authorities or the troika. But given that the claim of troika responsibility is already circulating in the media, it is worth looking at the data that are currently available. Eurostat has detailed breakdowns of public spending data that can shed at least some light on the question.* [Read more…]

Debt rescheduling and the power of exponential growth

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The agreement to reschedule Greek debt has been in the news recently. Frequently it is pointed out that Greek debt has not been forgiven, but “merely” rescheduled. While economists and some journalists argue that this distinction is not really important in an economic sense, I am not sure that this is widely understood. It may therefore be helpful to present a few back-of-the-envelope calculations that show the power of rescheduling debt servicing, which essentially means pushing payments into the future. It brings into play what can be called the “power of exponential growth”, which is like the inverse of the “power of compound interest” that can make debt burdens snowball.

I am going to take two time periods, based on an assessment that the recent Greek debt deal extends “the average loan maturity to over 40 years from 32.5 years currently”.  To keep things simple we’ll use 32 and 40 years. [Read more…]

The IMF on Greek debt – redefining chutzpah?

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A definition of chutzpah is murdering your parents and then claiming social benefits as an orphan. It is not widely recognised, but the IMF illustrates similar brazenness in the current debate on Greece’s debt burden.

While not exactly pretending to be an orphan, the IMF is currently getting a lot of sympathy for its position: it has come out increasingly strongly in favour of debt relief for Greece. On realistic assumptions the debt burden is unsustainable. The country can only recover if there is substantial debt relief. Its most recent debt sustainability analysis claims it was forced to provide loans when the euro crisis broke, alongside European institutions, against its better judgement, but now only massive debt relief will work.

Its realism has been welcomed, and contrasted favourably with the EU (and its German paymasters), which against all reason are insisting on more-or-less full repayment of past loans. In so doing the IMF has been feted by Greek commentators, the many EU citizens/taxpayers sympathetic to the plight of Greek citizens, and much informed economics commentary.

One certainly does not need to think of the IMF as a murderer. But one should be aware of three things.  First the IMF was not simply an innocent [Read more…]