Kenneth Rogoff and Jeremy Bulow on Greece's financial crisis 2010-2015 and the situation in July 2015

07/07/2015

Kenneth Rogoff of Harvard is one of the leading experts on financial crises, and is the author with Carmen Reinhardt of the quantitative history of financial crises in various forms worldwide, including excellent chapters on crisis detection and prevention, titled "This Time is Different," (2009). Bulow is professor of Economics at Stanford. Rogoff and Bulow say the debt restructuring is not the problem as this could be renegotiated later, and it is financed with loans from the EU for interest at low interest rates, as pointed out by other experts including Greece's finance minister during the Samaras administration 2012-2014. They point out that Greece without eurozone net new loans and aid of 80 billion euros during the period 2010-2013 would have had to make larger cuts. Greece received income transfers from European neighbors to run a 3% deficit in the budget, and receives additional 2% in EU aid transfers, for a total of 5% in income transfers under the deal offreed to Greece in June 2015, say Rogoff and Bulow. Without this it would be much worse off. This is clearly not the narrative in the Greece referendum, and does not reflect the situation say Rogoff and Bulow, where Greece has to come up with its own budget solutions and choices- which inevitably under any party including Syriza involve serious cuts and hard choices. Rogoff and Bulow do not comment on the criticism that the IMF and EU may have pushed too hard to have Greece bring the deficit down to 3% in a short period, damaging the political credibility of the main centre right and centre left parties. The IMF appears to have corrected this by 2013 pushing for growth and asking for flexibility for France, Spain, in meeting deficit targets. At various points the IMF has pushed harder for change in Greece for long term reforms in areas such as tax evasion where very little progress has been made to collect about 11 billion euros a year of missing revenues, and pension reforms, which may have inadvertently hurt the position of the centre right gover

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Prof. Rogoff at Harvard and Prof. Bulow at Stanford point to the role of extreme levels of borrowing as the root cause of Greece's economic crisis. Greece would have suffered more if the EU and ECB had forgiven the debt but refused to lend since 2010, say Bulow and Rogoff. The popular rhetoric puts the blame on Germany for the austerity programs, yet this does not tell the entire story of profligate borrowing and spending till 2009, and the efforts of the EU and the ECB to find a way out of the crisis with conditional financing of the government and banks.

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01/21/2008

Boom, bust cycles, with high indebtedness, asset bubbles, and unsustainable current account deficits are followed by long periods of slow or nonexistent growth say Rogoff and Reinhart in their new book. This raises questions about the now current hypothesis that economic recovery will take place in 2011-2013. As the book's title suggests there are long periods in history that show this and it is gaining in credibility as the column by David Wessel in the Wall Street Journal July 21,2011, suggests.

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