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Sunday, July 5, 2015

Paul De Grauwe : "Greece is solvent but illiquid: Policy implications"

Greece is solvent but illiquid: Policy implications | VOX, CEPR’s Policy Portal

Greece’s debt is 180% of GDP, which seems to make it insolvent without large primary surpluses. This column argues that since restructuring lowered the interest burden to just 2% of GDP, Greece is solvent – or would be with nominal GDP growth of just 2%. The ECB’s misdiagnosis has caused an unnecessary banking crisis. The solution is to accept that Greek debt is sustainable, so the austerity programme can be relaxed and liquidity support provided to the Greek banking sector. 

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