Expert economists give their verdict on whether Greece should default

 
Guy Bentley
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Should Greece default? (Source: Getty)

Debates over Greece's finances continue to drag on with MPs from Angela Merkel's party voting to back the extension of the bailout to the beleaguered economy.

The EU wants the programme, which was dues to expire on 28 February, extended until June. A host of reforms outlined by Greece was approved by Eurozone finance ministers on Tuesday.

While the politicians back further support for Greece parts of the German press are vehement in their opposition to the plan. Germany's largest tabloid Bild splashed its front page with the words "We say 'No!' to more billions for Greece".

As the can of Greece's financial woes is kicked further down the road, the IGM Panel of 41 distinguished economists has been considering whether per capita purchasing power in Greece will be higher if — rather than continuing to service its debts over the next decade and complying with the budget rules currently in place — it refuses to accept a continuation of its current troika program and explicitly defaults on its debt held by the official sector.

While the majority of those asked said they were uncertain more economists thought Greece would be better off if it bit the bullet and went for default rather than continuing to service its debt. One of those who supported a Greek default was Darrell Duffie of Stanford, who said:

It's a tough tradeoff. A fresh start would help after some forced restructuring of labor markets, the civil service, and tax collection.

He was joined by Abhijit Banerjee of MIT:

The debt overhang is very costly. Domestic demand is also a problem. And the government is busy fire-fighting rather than making policy.

Just 16 per cent of the panel disagreed with the proposition that Greece would be better off in a decade's time if it defaulted on its debt. One of those who dissented from the majority was Larry Samuelson of Yale, who explained his verdict:

Greek economic institutions are notoriously ineffective; the troika program may provide the commitment needed to build working institutions.

Samuelson's fellow panelist Markus Brunnermeier while agreed that Greece should not default but argued "One has to find the right/sustainable balance between structural reforms that ultimately benefit the common man and some creative debt relief" .

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