FT columnist Martin Wolf is not sure how he would vote in the coming referendum, which in reality is a referendum on remaining in the euro (“yes”) or abandoning it (“no”). Two well-known American economists display no such hesitation. Paul Krugman comes down firmly in the “no” camp.
It’s easy to get lost in the details, but the essential point now is that Greece has been presented with a take-it-or-leave-it offer that is effectively indistinguishable from the policies of the past five years.
This is, and presumably was intended to be, an offer Alexis Tsipras, the Greek prime minister, can’t accept, because it would destroy his political reason for being. The purpose must therefore be to drive him from office, which will probably happen if Greek voters fear confrontation with the troika enough to vote yes next week. ….
[I]t’s time to put an end to this unthinkability [by voting “no”]. Otherwise Greece will face endless austerity, and a depression with no hint of an end.
Paul Krugman, “Greece Over the Brink“, New York Times, 29 June 2015.
Joseph Stiglitz, in a telephone interview with a reporter from Time magazine, recommends a “yes” vote, but he combines this with increased aid and a write-off of Greece’s debt. This is the “third way” – a path of “endless bailouts and few conditions” – that Martin Wolf dismisses as delusional.
Interestingly, Stiglitz believes that a “no” vote – abandoning the euro – would be a disaster regardless of the economic consequences. If the Greek economy performs well without the euro, this would encourage other countries to leave the euro. If the economy collapses, Greece would become a failed state, allowing Russia and China to “undermine Greece’s allegiance to the E.U. and its foreign policy decisions”.
“They have criminal responsibility,” he [Stiglitz] says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview. ….
If the Greek economy recovers after abandoning the euro, it would “certainly increase the impetus for anti-euro politics,” encouraging other struggling economies to drop the common currency and go it alone. If the Greek economy collapses without the euro, “you have on the edge of Europe a failed state,” Stiglitz says. “That’s when the geopolitics become very ugly.” ….
“The creditors should admit that the policies that they put forward over the last five years are flawed,” says Stiglitz, a professor at Columbia University. “What they asked for caused a deep depression with long-standing effects, and I don’t think there is any way that Europe’s and Germany’s hands are clean. My own view is that they ought to recognize their complicity and say, ‘Look, the past is the past. We made mistakes. How do we go on from here?’”
The most reasonable solution Stiglitz sees is a write-off of Greece’s debt, or at least a deal that would not require any payments for the next ten or 15 years. In that time, Greece should be given additional aid to jumpstart its economy and return to growth. But the first step would be for the troika to make a painful yet obvious admission: “Austerity hasn’t worked,” Stiglitz says.
Simon Shuster, “Joseph Stiglitz to Greece’s Creditors: Abandon Austerity Or Face Global Fallout“, Time, 29 June 2015.