Looking At How Greece's New Government Will Fare In Eurozone
ROBERT SIEGEL, HOST:
What effect might the Greek election and the new anti-austerity government have on the rest of Europe? Can Athens, under Prime Minister Alexis Tsipras, succeed in negotiating a rescheduling of its debt? And if it does, could that encourage other debt-burdened countries in the eurozone to follow suit? Well, we're going to hear now from Jacob Kirkegaard of the Peterson Institute for International Economics in Washington. Hi, welcome to the program.
JACOB KIRKEGAARD: My pleasure.
SIEGEL: First, the argument for a renegotiation of the Greek debt is roughly this - the International Monetary Fund, the European Central Bank, the European Commission, so-called Troika, bailed out Greece in 2010 with conditions so harsh that they turned a recession into a depression and made repayment even more unlikely. Any sign that European lenders are reconsidering that austerity program?
KIRKEGAARD: I think at the current moment the answer is no. But at the same time, I think the reality is that everyone in Europe, they understand that the Greek debt, as it is currently structured, is unsustainable. So it's not really a question of whether or not Greece is going to see another debt restructuring. I think everyone agrees that it will. The disputes are about the process that leads to this debt restructure. It's essentially the chronology of it, where the Troika and the Eurogroup and the European Commission and the ECB are saying, look, we can discuss this but only after you, Greece, has completed the structural economic reform program, or essentially the Troika program, first. So you do your homework first, and then we negotiate.
SIEGEL: Let's say the new Greek government actually manages to win some forbearance - a good deal for them. Would that be an encouragement to Italy, Spain, Portugal, whoever to say, you know, these left-wing parties, this may be the way to go?
KIRKEGAARD: I strongly doubt that. Because remember that the only reason that such a good deal could be negotiated is that Greece has gone through a great depression. And I don't think that any other country in the euro area would want to go through a debt restructuring of privately held debt, like the Greece had in 2011, 2012, because the repercussions of that were very severe indeed.
SIEGEL: Under this agreement, Greece, in addition to cutting lots of public employees and other public expenditures, was supposed to crack down on corruption and on tax evasion. Is there any sign that someone's gone after Greek oligarchs to pay some taxes?
KIRKEGAARD: I think there's some signs, but I think it's also fair to say that Greek tax collection as it is currently structured is not viable, which is one of the reasons why the euro area is saying that, look, why should we give you debt relief when you are still not a viable country in fiscal terms?
SIEGEL: When you're saying it's not viable you mean they're just not collecting the taxes they're supposed to collect?
KIRKEGAARD: Yeah, they're not collecting the taxes, and it's also the sort of burden-sharing of this. And this is where I think, you know, Alex Tsipras and Syriza has a good argument - that there's no doubt that there are sectors of the Greek economy that has been largely shielded from this.
SIEGEL: When the Greek bailout was agreed a few years ago, it was said that Greece and all of its 11 million people were kind of an outlier. Its policies had been truly irresponsible, and its leaders had cooked the books. But Spain, Italy, Portugal, Ireland were more consequential economies. They were also in trouble. And there was a mixing of the signals that would be sent to Greece and the signals sent to those countries. Today what's the context for Greece's dilemma? Are those countries out of the woods or are they still in the same trouble they were in in 2010?
KIRKEGAARD: No, I think the situation today is dramatically different. The risk of financial contagion from, you know, Greece is in trouble, that leads to troubles in Portugal, Ireland, elsewhere, we're simply not seeing that. And this is partly in response to the better performance reform-wise of these other countries, but also as part of the changes that have been made to the euro area.
SIEGEL: But say in Spain, where there's still a very high unemployment rate, one can look at the past few years and say they're in a completely different situation from the Greeks?
KIRKEGAARD: In terms of the unemployment rate, the answer is no. But certainly in terms of the level of debt is still significantly much lower than in Greece. And then the broader prospects of is it an economy that can grow? I think the answer to that question is yes for Spain. It is a country that has enacted a number of important structural reforms to labor markets, pension systems. So it's a country with a better future.
SIEGEL: To keep your guard thank you very much for talking with us.
KIRKEGAARD: My pleasure.
SIEGEL: Jacob Kirkegaard is a senior fellow at the Peterson Institute for International Economics in Washington, D.C.
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