How To Solve The Greek Public Debt Problem
In an article in ESTIA, Prof. Nicholas Economides discusses how issuing new bonds and using the moneys exclusively for investment will solve the Greek sovereign debt problem. Additionally he proposes reducing interest rates and making them constant, as well as lengthening the debt maturity of 75 years. Read more…
As a numbers game, this proposal sounds convincing: clearly, investing a total of 3-6% of GDP annually over the next years would definitely leave a positive mark.
However, this is more than a numbers game. The investment argument would be more credible if it were accompanied by a list of specific projects which are waiting for investment. 7 BEUR annually is a huge amount to spend wisely but how could it be spent wisely? Huge projects cannot be started overnight. There has to be planning and approving. Are there any specific projects which are indeed only waiting for the money?
A key aspect of such a program would have to be financial control. ‘Common governance’ alone is not good enough. Greece has a long history of receiving foreign funding for specific purposes whereas in actual fact the money ends up elsewhere (EU subsidies, EIB loans, etc.). Without thorough financial control and audit, a good portion of such funding is likely to end up in private offshore banking accounts.
Personally, I am a skeptic as regards major investment drives routed through the public sector, above all the Greek public sector. The larger the flows of funds, the greater the pressure of political groups to use the funds for a specific purpose, often not an economically sound purpose (“bridge to nowhere”). Perhaps one should consider that such an investment drive flows directly from foreign to Greek private sectors. The EU could issue guarantees covering the political risks of such investments (including Grexit) which would cost it a signature on a piece of paper. The economic risk would obviously have to be borne be private investors. The great advantage of private investments is that private investors are likely to invest their money wisely and they are equally likely to look out that their money does not end up in undeserved pockets of others.