Why is nobody talking about the Greek financial crisis anymore?

My answer on Quora:

After Greece received “bail-out” financing from IMF, ECB and European Commission (the Troika) in the midst of its debt crisis in 2010, Greece’s financial troubles re-engage the casual observers interest when repayment deadlines approach. Can they make their payments? If not, what will the troika do? This summer has fifteen of those deadlines, totaling $13.86 billion (see here for more details) in scheduled debt repayments.

The chatter centers around two main problems:

  1. Greece’s economy has not seen the kind of growth that its creditors expected after implementing severe austerity demands in exchange for financial support; and
  2. The IMF and Europe (via ECB and Germany) do not see eye to eye on how sustainable Greece’s debt is. The IMF believes that Greece needs some additional debt forgiveness. The Europeans do not share this view. They have been adamant against it out of concern for setting a dangerous precedent within the eurozone. Germany does not want to bail out what it sees as financial profligacy and mismanagement, and would certainly not want to do so again for anyone else if it is forced to do so for Greece. The Europeans, then, are more willing to see Greece’s debt as sustainable and on an OK path, delaying debt repayment deadlines anytime the Greeks come up short.

This “extend and pretend” approach is worrying. The more it keeps up, the more indebted Greek becomes, the stronger its debt burden, the greater the drag on growth, and the continuation of severe austerity measures preventing the kind of investment and consumption needed for growth to pick up. The IMF holds this view, and is the basis for its calls for some form of debt forgiveness.

This summer of 2017 the IMF has agreed “in principle” for new loans to be extended to Greece (without the IMF needing to commit to any new financing). This compromise has succeeded in Latin America in 1980s, when debt and growth problems were similar to those in Greece today (see An IMF Bridge to Somewhere for Greece?). The success, however, was ultimately because the right kind of economic reforms and the right kind of financial relief was implemented and agreed on between national authorities and their creditors.

During summer 2017 we won’t hear a lot more chatter about Greece because of new loans it received to meet its deadlines. The longer we “extend and pretend” however, the worse it will be for everyone. With elections in Germany in fall 2017, we can expect more silence on Greek woes. Though silent, however, the specter remains.



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