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Nominal debt haircut is more than a necessity

09 March 16 | Panagiotis Liargovas
Panagiotis Liargovas

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Antulio Richetta

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Greece's debt as a proportion of GDP was double the average in Europe and a sign of the Greek economy's failure, as well as indicating that the country needs a reduction of its nominal debt in order to recover, the head of the Greek Parliament's State Budget Office Prof. Panagiotis Liargovas told MPs earlier this week.

 

In a briefing with Budget Office Scientific Committee member Prof. Panos Kazakos, he noted that the Greek economy needs to adjust to the new global environment in order to return to sustainable growth.

Debt relief by extending payments, adjusting interest rates and a moratorium on payments would not be sufficient to achieve this, he suggested, and Greece should strive for a nominal debt haircut "if such a thing is possible."

"Greece has arguments in order to push for certain things, as long as it can discern them. In this I am closer to the International Monetary Fund, which is talking about a serious restructuring [of debt] and not just an extension," he said.

According to Kazakos, Greece could raise the point that debt on such a scale was a deterrent for long-term investments or that continued migration flows might result in fiscal problesm and have a negative impact on tourism, a key driver of Greece's economy.

Liargovas also analysed the reasons why Greece had yet to exit the programme, unlike the other European countries that entered memorandum programmes.

In Greece's case, he said, the initial conditions had been worse, the degree of austerity demanded had been extremely high, the policy mix adopted was based more on taxation and this was compounded by the mistaken calculations made by the institutions, a shortfall in revenues, delayed reforms, weak institutions and a clientelist state.

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