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‘Painting’ Greece’s Debt Sustainable: An Exercise in Futility or a Viable Project?

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'Painting' Greece's Debt Sustainable:
An Exercise in Futility or a Viable Project?

Panagiotis Roumeliotis
Emeritus professor of international political economy, Panteion University of Athens, Vice-chairman of Piraeus Bank

Eleni Panagiotarea
Research Fellow, ELIAMEP

The question of Greece's debt sustainability has been lingering over the country's economy. Resolving it will not prove an easy task. Definitions and measures of sustainability vary, competing, in fact, with political calculations and differing - creditor/debtor - perspectives. The paper examines current developments, appraising both the size of fiscal consolidation undertaken and the effects on the economy's growth prospects. Austerity has proven self-defeating: investor confidence in the Greek economy has not been restored, while the debt ratio has deteriorated. Projecting the future costs of debt servicing in the medium-term, the paper argues for a co-ordinated strategy to arrive at debt sustainability, including official debt relief. It differs from other proposals that have been put forward, as it attempts to answer both the moral hazard problem and place Greece's trajectory in the broader European environment.