By Joe Kearns It takes two to negotiate. The Greek government has won the misguided sympathy of Washington Post columnist Katrina vanden Heuvel. She claims that “Syriza is a pro-European party. It does not want to leave the EU. Its leader, Alexis Tsipras, says that it wants to honor Greece’s debts. But debt that cannot be repaid will not be repaid.” The premise of vanden Heuvel’s argument rests on the myth that it is inherently impossible for Greece to pay down its debts at current levels and the ruling Syriza Party has offered a reasonable compromise. The Greek government is casting its creditors—the International Monetary Fund, the European Central Bank, and the European Commission—in a negative light to portray itself as a victim. While some changes to the current debt agreement are sensible, the its insistence that creditors should write off half of its sovereign debt invalidates the idea that its demands are reasonable.
Greece’s debt-servicing schedule is neither unusual nor unfair compared to the budget schedules of other European debtor nations in recent decades. Under the current agreement, Greece must run a budget surplus (before interest payments) of 4.5% of its GDP this year. As recently as 2013, debtor nations like Portugal, Italy, and Ireland paid 5%, 4.8%, and 4.4% of GDP in interest respectively. Creditors have already taken a 74% loss on their debt in real terms from a prior haircut, where the Greeks received several concessions of lower interest rates and extended loan maturities. Greece’s interest payments have already fallen from 7.7% of GDP in 2011 to 4.2% last year. According to the Greek government, they will eventually decline to just 2.2% of GDP in 2022. Far from getting a raw deal, Greece got a bargain.
Although creditors should reject Greece’s demand to write off half of its debt, they should consider other reforms. To his credit, Irish Finance Minister Michael Noonan proposed additional reductions of interest rates and extended repayment dates. While creditors are open to reasonable concessions, the Syriza-led government has not reciprocated. In a seven-page letter to the Eurozone, the government even included policies that could raise costs, including a “basic income scheme” for retirees and an increased minimum wage. Apparently, meeting the other side halfway is overrated.
Editor’s Note: This piece is one of two op-eds framed around the question, “Are Greece's Creditor's Being Reasonable?" It takes the affirmative position. To read the opposing view, please read "Give 'Em A Break Already" by Rob Gelb.