But you should listen to us.” This is why linking Greece’s debt payments to the country’s growth is such a good idea: no one has to trust the Greeks for it to work. The salaries of these statistical gurus would be nothing compared to the collateral damage that would be wrought if Greece and Germany remain at loggerheads, the troika program lapses, and Athens defaults on its debt.Īs Varoufakis recently said to the German paper Die Zeit, “You need not trust us. Parachute in a whole flotilla of them, make sure Greek data are sound, and tie Greece’s future debt payments to its economic success. Instead, end the impasse between Athens and Berlin by stationing a few more EC and IMF economists in the Greek statistical agency. At the time, Georgiou noted (paywall), “I am being prosecuted for not cooking the books… Unfortunately, in Greece statistics is a combat sport.” Greece’s government reacted badly when the jiggery-pokery was revealed: It threw in jail the head of the government statistical office (and former IMF economist), Andreas Georgiou, who revealed the fraud. After all, it was the country’s chronic fiddling of its public deficit numbers that touched off this crisis. Growth-indexed debt requires credible GDP data, and Greece’s data aren’t credible. However, Schäuble does have a legitimate reason to be skeptical. If Germany truly believes the troika’s policy package will produce growth, there’s no doubt that it and its euro-zone partners will be paid. Schäuble and Varoufakis ought to be able to reach common ground on tying Greece’s debt payments to the country’s GDP.
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Instead, when countries run into hard times, their debt payments would automatically be suspended while they sort out their affairs. If more countries converted to issuing growth-linked debt, it would reduce the need for acrimonious debt restructuring negotiations during crises (as in Argentina’s case) or for the equivalent of a bankruptcy court for countries (there currently isn’t one). This should be the future of how we lend to many countries-especially the very poor 50 or so nations that attract almost no private foreign investment, and vulnerable emerging markets that depend heavily on commodity exports. Interest payments on the loan were suspended in any year that the UK’s foreign-exchange earnings fell below pre-specified minimums. John Maynard Keynes negotiated similar terms (paywall) on a 1946 American loan provided to get post-war Britain back on its feet. Nonetheless, tying debt repayment to economic circumstance does have a more honorable history. Greece included a similar sweetener in its 2012 debt write-down with private bondholders. Argentina issued GDP-linked warrants as a bonus for creditors willing to be forced into its hard-nosed “take it or leave it” 2005 debt restructuring. "We are states of law - our actions must be built on the law and on treaties," she said.But the few countries that have recently put the concept into practice are not exactly poster children for economic probity. "Otherwise it will take too long for anything to happen at all." "We will not get by without further treaty changes over the years, even though we should now do everything that can be done without treaty changes," Merkel was quoted as saying. Berlin has said, for example, that eventually creating a central authority to wind down failing banks would require treaty changes to have a safe legal basis. Hoping for a Quick Deal Striking a deal with private-sector banks is an important step in efforts to finalize a second. The chancellor also defended Germany's insistence on making potentially time-consuming changes to the European Union's basic treaty to complete the bloc's banking union - a key part of its strategy to combat its financial crisis. Greece is hoping the debt write-down will be worth a total of 100 billion. Merkel faces national elections in September and is sticking to her hard-nosed approach to Europe's debt crisis, with Germany the biggest contributor to rescue funds but also insistent on spending cuts and economic reforms. "I assume that debt sustainability will continue to be assured." "Greece has moved forward thanks to the very reform-oriented Samaras government," Merkel said in the comments published Tuesday. But asked in an interview with Germany's Sueddeutsche Zeitung and five other European newspapers whether there will be a second writedown, Merkel replied: "I don't see it." The possibility of granting Greece a second round of debt relief has frequently been floated.
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Greece received in April last year a first round of debt relief that wiped 100 billion euros ($130 billion) off the sum the government owed to private sector investors, who took heavy losses on bondholdings. BERLIN - German Chancellor Angela Merkel has rejected talk of a new debt writedown for struggling Greece and insisted the country is making good progress.