To many Greeks, the debt the country has amassed is the evil fruit of austerity policies, imposed from the outside, that asphyxiated its economy and trampled on its sovereignty.
To the International Monetary Fund, the debt of more than 310 billion euros, or almost $339 billion, is more of a mathematical problem. After years in which it was a stern advocate of tough austerity policies, it now says that there is no way that Greece can reasonably pay its debts and needs to have a substantial amount of it forgiven.
Then there is Germany, Greece’s largest single creditor, which treats Greece’s debts as a sacrosanct commitment that must be paid as a matter of law and of principle.
It makes no sense to demonize the debtor or the creditor. But there has been a constant tendency with Greece to treat the debtor as a sinner.
Charles H. Dallara, former managing director of Institute of International Finance
As Greece and its creditors begin working on the details of the latest bailout package – the third for Athens in the past five years – the issue of debt has become something of a Rorschach test. Nearly everyone agrees that its debt is unsustainably high, but figuring out how to grapple with it has unleashed a volatile mix of politics, economics, history and even morality.
The economic argument in favor of debt relief is that Greece’s depression-scarred economy cannot be expected to carry the weight of debts that now amount to around 175 percent of gross domestic product. That’s above what the IMF set as a “sustainable” target of 110 percent, and could increase to 200 percent and more in coming years if the economy withers further.
Debt relief, many economists say, is no longer a matter for debate but an unavoidable necessity.
Athens and Berlin instead often focus on what each sees as the moral crux of the issue, taking opposing and often emotional stands that only make a deal harder to achieve.
“I have been involved in debt negotiations for 40 years and never found it useful to moralize about the problem,” said Charles H. Dallara, a former managing director of the Institute of International Finance.
“It makes no sense to demonize the debtor or the creditor,” he said. “But there has been a constant tendency with Greece to treat the debtor as a sinner. This has been a big part of the problem.”