Philippe Legrain in Foreign Policy:
Greece’s reckless borrowing was financed by equally reckless lenders. First in line were French and German banks that lent too much, too cheaply — foolishly treating the Greek government as if it were as creditworthy as Berlin and encouraged by Basel capital-adequacy rules and European Central Bank collateral-lending rules that treated sovereign bonds as risk-free.
By the time Greece was cut off from the markets in 2010, its soaring public debt of 130 percent of GDP was obviously unpayable in full. It should have been written down, as the IMF later acknowledged publicly. Austerity would then have been less extreme and the recession shorter and shallower. But to avoid losses for German and French banks, eurozone policymakers, led by German Chancellor Angela Merkel, pretended that Greece was merely going through temporary funding difficulties. Breaching the EU treaties’ “no-bailout” rule, which bans eurozone governments from bailing out their peers, they lent European taxpayers’ money to the insolvent Greek government, ostensibly out of solidarity, but actually to bail out creditors. Poor Greeks were, in effect, consigned to a debtor’s prison.
While foreign banks that held on to their Greek bonds eventually took some losses in 2012, Greece’s EU creditors have bled the country dry. Thus eurozone banks share responsibility for Greece’s plight, while eurozone policymakers — as well as the Greek elites who did their bidding — are to blame for the extent of the misery that Greeks have endured. So whatever you think of Syriza’s left-wing politics, it is justified in demanding debt relief from the EU. It’s a pity more mainstream Greek voices aren’t doing so too.
Debt relief isn’t just a matter of justice. It’s an economic necessity. Contrary to the propaganda from the EU and Samaras’s government, Greece is not putting the crisis behind it. Yes, the economy is finally growing a little: by 1.9 percent in the year to the third quarter of 2014. Employment has edged up. The government has achieved a primary surplus — its revenues now cover its outgoings, excluding interest payments. And it managed to sell investors some longer-term bonds last year. Briefly, Samaras even thought that Greece could escape the EU’s clutches and fund itself freely from the markets when its EU loan ends in February.
Yet even at the height of the markets’ euphoria about the eurozone last summer, before Germany’s economy stalled, investors who were desperate for yield and increasingly blind to risk in markets awash with central-bank liquidity were unwilling to lend to the Greek government on terms on which it could finance itself sustainably. And the mood soured long before a Syriza government seemed imminent.