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I was interviewed in the Wall Street Journal by Stephen Fidler on why, contrary to what eurozone authorities claim, Greece needs debt relief

“Of course they are going to say that,” said Philippe Legrain, a former economic adviser to the European Commission.

Mr. Legrain says Greece should have been given debt relief back in 2010 instead of being forced to pay its debts in full—largely to the benefit of banks in Germany, France and elsewhere in Northern Europe—and submit to a harsh austerity program.

Now, saddled with the bleak political and economic legacy of that decision, eurozone governments are just “kicking the can down the road ad infinitum or at least until the current crop of policy makers is retired,” Mr. Legrain said.

He doubts Greece’s debt will fall as a share of its GDP in coming years, and certainly nowhere near the official eurozone projection of below 124% of GDP by 2020. That is in part because he thinks official forecasts for growth are way too optimistic. Those forecasts see nominal GDP growth—real growth plus inflation—of close to 5% from next year to 2020.

He is also skeptical of the assumption that Greece will run primary-budget surpluses—its budget balance before interest payments on debt—equivalent to 4% or more of GDP. That is politically unrealistic, he says. “No other country has done what Greece is being asked to do,” he said.



Posted 16 Jan 2015 in Blog

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