Opinion

Greece: End of Bailouts and Start of the Path to a New Bankruptcy

By Nicholas Economides

Headshot of Nicholas Economides

The correct solution for Greece does not require financial wizardry. But it does require having a longer horizon, a feature that politicians all over the world lack.

Thursday’s Eurogroup set up the final conditions for the end of the third Greek bailout program in August. Since 2010, Greece has borrowed 275 billion euros from EU countries and the IMF.

Even though the borrowing is over, EU and the IMF have imposed new long-term austerity conditions on the Greek economy, including additional sharp pension decreases and the requirement that Greece produces a 3.5% of GDP budget surplus. To achieve this, Greece has imposed skyrocketing taxes including a 24% value added tax and plans to increase taxes to those making as low as 6000 euros a year. Taxes suck out all the extra cash businesses and people have. Investment has plummeted, and consumption is 25% lower than a few years ago. Unemployment is at 23%.

With huge taxes and a business-unfriendly bureaucracy, Greece is unlikely to attract investment and will not achieve fast growth. Without growth, Greece will be unable to pay back its debt in full despite a 10-year postponement of maturities on 1/3 of its debt granted by the EU on Thursday.

Originally published in Greek by Kathimerini. Read the full English translation here.

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Nicholas Economides is a Professor of Economics at NYU Stern School of Business.