Vicky Pryce, a director at the Centre for Economic and Business Reform and author of Greekonomics, says Yes.
Greece’s deficit has shot up to over 7 per cent of GDP and debt to more than 180 per cent of GDP as a result of the latest bailout – with the money mostly used to repay debt and recapitalise the banks, rather than going to rebuild productive capacity. In advance of the Eurogroup meeting, Greece voted in measures, including tough pension reforms, as part of a deal to improve the deficit by some €5.6bn and ensure a primary surplus of 3.5 per cent of GDP by 2018. It is, however, resisting further contingency tax measures of €3.6bn favoured by the IMF to provide insurance in case current measures fail to deliver. Greece has managed to limit its GDP decline thanks to bumper tourism receipts. But that can’t be the long-term solution. What Greece needs is sustainable growth. Only a mix of debt restructuring and debt relief will give Greece the boost it needs to escape from this vicious circle of austerity and recession which has devastated its economy.
Dr Holger Schmieding, chief economist at Berenberg, says No.
Debt relief is a red herring. Creditors have long ago cut interest rates and lengthened maturities so much that Greece’s debt service burden is well below that of many other European countries. The real problem in Greece is its government. Before the unlikely coalition of radical populists, the Greek equivalent of a tie-up between Jeremy Corbyn and Nigel Farage, came to power in 2015, Greece had finally started to recover from its deep adjustment crisis. Choosing reform reversals and a conflict with creditors, Prime Minister Tsipras derailed the Greek upswing, triggering massive capital flight and a relapse into recession. Although he ditched his disastrous finance minister Varoufakis last summer, he did not fully abandon the politics of tax hikes and reform reversals. To get Greece out of its misery, Athens must get its policies right first. If it does, Greece would need little debt relief. If it does not, no debt relief could save the country from its own mistakes.