August 19, 2022

Too Radical a Debt Plan From Greece

Under the proposal, Greece would transfer as much as 133 billion euros — or 40 percent of its government debt, equal to about $195 billion — to the European Central Bank, which would then pay off the obligation by issuing its own euro bond.

It would be a “restructuring without a haircut,” in the view of the plan’s proponents, who enthusiastically described it to Mr. Papandreou in a series of secret meetings this year. The result, ideally, would be to ease the weight of the Greek debt on the economy, clearing the way for renewed growth while keeping the bankers and credit-rating agencies on board.

In many ways, the plan was a dreamy alternative to the grim calculus of Europe’s demands for more austerity from Greece in return for more loans. And Mr. Papandreou went so far as to ask a political ally and the plan’s two proponents, a British and a Greek economist, to lobby Europeans in its favor.

But according to economists who participated in the discussions, Greece’s finance minister, George Papaconstantinou, was opposed, arguing that Germany, to say nothing of the central bank, would never accept it. And while a number of economists contend that Europe will have to develop a plan to restructure Greece’s debt, the Greek government has shelved the notion for now as it moves toward another bailout to keep the country out of bankruptcy.

“It was a nice idea, but not defensible in current circumstances,” said Daniel Gros, the head of the Center for European Policy Studies in Brussels, who took part in one of the meetings with the prime minister to discuss the plan’s merits. “If there is one person who cannot propose something like this, it is the Greek prime minister. It would have to be a German.”

This week, Mr. Papandreou is struggling to persuade his increasingly disruptive party members that Greece must agree to another round of austerity measures to qualify for a second portion of loans from the European Union and the International Monetary Fund.

Those measures include closing down public-sector enterprises, selling more assets and increasing tax revenue. The new package will be submitted to Greece’s Parliament on Thursday and a vote is expected before the end of the month.

Signs are growing, however, that the patience of the long-suffering Greek public is wearing thin. Mr. Papandreou’s approval ratings are below 30 percent and, as uncertainty builds, Greeks continue to take money out of the banking system.

Mr. Papandreou’s interest in a plan to transfer much of the country’s debt to the rest of Europe may well have been a passing fancy. And Mr. Papandreou’s chance of persuading Jean-Claude Trichet, the president of Europe’s central bank, to take on even more debt on top of the nearly 200 billion euros ($292 billion) it already is exposed to, was always going to be a long shot.

“The prime minister is in favor of the proposal,” said Vasso Papandreou, a former top financial adviser to the prime minister and an influential member of Parliament within the governing Socialist party, known as Pasok, who has been openly critical of the government’s austerity plan. “This is not a Greek problem any more — it’s a European problem.” (Ms. Papandreou is not related to the prime minister.)

A spokesman for the prime minister said that Mr. Papandreou and other European officials had long supported a euro bond as one policy option but that his current priority was to make the Greek economy competitive again.

“In search of the best solutions to effectively and permanently exit the crisis, the prime minister will continue to exchange views with his counterparts around the world as well as leading economists and academics,” he said.

The two architects of the idea have longstanding ties to Mr. Papandreou. They have characterized their sweeping plan, with a bit of cheek, as a modest proposal.

One of the architects, Yanis Varoufakis, a political economist and blogger at the University of Athens, was a speechwriter and adviser to Mr. Papandreou from 2004 to 2006. The other, Stuart Holland, is a Europe expert and former high-ranking official in Britain’s Labour Party who was a longtime adviser to Andreas Papandreou, Mr. Papandreou’s father, who was also Greece’s prime minister.

Article source:

Speak Your Mind