Advertisement

Bailout of Greece is Likely, Professors Say

Greece will likely recover from its financial meltdown—though the process may take decades, Harvard professors predict.

Though Greece has historically had high levels of debt compared to its general economic productivity—a situation only exacerbated by the ongoing financial recession—Harvard professors suggest that its economy is likely to stabilize to pre-recession levels over the coming years.

In 2000, in order to be accepted into the European Union, the country reported deficits below the EU cap of 3 percent of GDP by allegedly falsifying data, according to Luca Einaudi, a visiting scholar at the Weatherhead Center for International Affairs.

When opposition leader Geórgios Papandréou assumed the office of Prime Minister in October 2009, he revealed that the deficit was much greater than expected—four times greater than the EU cap, Einaudi said. Soon after this announcement, rating agencies—on edge as a result of the recession—began downgrading Greek’s credit rating. Currently, Greek credit is trading at junk level: the lowest credit rating possible.

The primary problem for Greece now is whether or not the country will be able to generate enough capital to pay back their short-term debt, said Jeffrey A. Miron, a senior lecturer in economics.

Advertisement

While Miron said he believes that it would be best to simply allow Greece to default on its debt and begin rebuilding its economy from scratch, other professors disagreed.

History Professor Charles S. Maier said a bailout—the likely course of action—would be ideal, as allowing Greece to default would likely result in massive inflation and skyrocketing unemployment rates, causing much turmoil.

According to Maier, even a little bit of help would go a long way in maintaining stability. He added that a failure to intervene in Greece’s lagging economy would be contrary to the EU’s commitment to aiding its less prosperous member states.

Einaudi echoed Maier’s recommendation, noting that “there is no other way than to lend money to Greece.”

“You have to do it because otherwise the situation really blows up, and once you have panic it become more expensive to salvage the situation,” Einaudi added. “It is always better to do it fast.”

Even if Greece is bailed out, Einaudi said that economic recovery will not be a speedy process, adding that it will take decades for Greece to fully recover.

Tags

Recommended Articles

Advertisement