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Economists warn against going easy on Greece

The Local · 5 Jun 2015, 09:04

Published: 05 Jun 2015 09:04 GMT+02:00

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The economists' intervention came after Greece announced on Thursday that it would not be making a debt repayment of €300 million to the International Monetary Fund (IMF) due on Friday.

Instead, it will bundle all of its payments due this month into a lump sum of €1.6 billion paid later – a technically permissible but rarely used move.

"We can't give up the idea of our crisis policy – help as reciprocal for reforms," said Michael Hüther, head of the Institute for the German Economy (IW).

"Greece can bear the burden of interest [on its debts] and has a chance to grow more, but only if the Greek government returns to the course of cooperation and credibility."

"Creditors have to stay tough in the negotiations with Greece," agreed Christoph Schmidt, leader of the government's council of economic advisors.

"It's unacceptable that the Greek government has left the already-functioning path of reform for purely ideological reasons and doesn't want to come back to it. The creditors giving up would be damaging for European integration overall."

The last country to make use of the option to delay a payment to the IMF was Zambia in the 1980s, prompting some to argue that Greece should simply be cut off from the cash lifeline.

"Don't throw good money after bad," urged Clemens Fuest of the Centre for European Economic Policy.

"Germany should be ready to negotiate on already-agreed loans and the conditions, but shouldn't make new loans under any circumstances. The ECB has to stop financing Greece."

Hans-Werner Sinn of the Ifo economic research institute was harder yet.

After cataloguing the woes of the Greek economy - €320 billion or 180 percent of GDP in loans, spending at 114 percent of national income, unemployment doubled in five years – he argues that "only leaving [the Euro] and devaluing the currency can refloat the country and avoid further damage to European integration."

Story continues below…

That's exactly what European leaders hope to avoid, but progress remains slow.

While Greek Prime Minister Alexis Tsipras spoke with Chancellor Angela Merkel and President Francois Hollande of France on Thursday night, the leaders had no concrete progress to announce after the discussion.

A Greek government official spoken to by Bloomberg said that the discussion was "constructive" but that Tsipras had refused a latest offer from the creditors.

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