Greece’s problem is not the amount of its debt

THE ECO SCAN / INTERVIEW – According to Jean-Marc Daniel, professor of economics at ESCP Europe, action should be taken to rebalance structural accounts by increasing revenue and reducing expenditure.

The Greek Prime Minister rejected the proposal of the official creditors of the: to extend the assistance program from June 30 to November 30 for an amount of 15.3 billion euros in exchange for deficit control measures and system changes VAT and pensions. prefers to submit the proposal to a referendum on July 5. On June 30, Greece will exit the 2012 aid program without any line of credit. It will default vis-à-vis the IMF, and, no doubt, will experience bankruptcy soon. Jean-Marc Daniel, professor of economics at ESCP Europe and economist at the Institute of Business, deciphers the crux of the Greek problem.

LE FIGARO – What is Greece’s real problem today?

Jean-Marc DANIEL: The question which arises today is can a state be permanently in deficit, that is to say to increase without limit its sound? The Greek case replies pragmatically that it is not and the European budgetary pact lays down rules which make it possible to avoid breaking it down. It breaks down the public deficit into two parts: the cyclical deficit and the structural deficit. The first depends on the cycles. During recession, revenues contract and during times of growth, they increase. Ultimately, over the cycle, the budget is balanced and the debt stable. The second relates to the structure of taxes and public expenditure. The real budgetary stake is to have a zero structural deficit: the European treaty authorizes an overrun of 0.5% of GDP. Letting the structural deficit slip away leads to an accumulation of debt which ends up stifling public action, threatening the credibility of the State and preventing the markets from accepting deficit financing, including the cyclical deficit even though it is. this is necessary for the stabilization of the economy. Greece is in this situation.

Should we cancel all or part of the Greek debt?

Greece’s problem no longer really comes from the debt, which now stands at 180% of GDP. Indeed, in the budgets of any state, we are content to pay the interest on the debt (the rates for Greece have been reduced considerably). A state does not repay its debt: at each maturity, it immediately borrows again the equivalent of what it must repay. In practice, each maturity leads to a new loan, for Greece as for all the other states. Greece’s problem is that it can no longer borrow on the financial markets (interest rates are too high). It relies almost exclusively on public creditors (European Financial Stability Fund, International Monetary Fund, European Central Bank, European Union). Each new loan then gives rise to political psychodramas since the creditors must agree to lend again. The solution would therefore be to delay the deadlines to clarify the political situation.

What must be done strictly economically?

Take action to rebalance structural accounts by increasing revenue and reducing expenditure. To increase revenue, we can either increase VAT, which Europe is demanding and Greece refuses because there is a real risk of increasing the share of the black economy, or relaunching growth. It’s easy to say but hard to do. Either way, there is confidence in growth and to say the least, the current government is doing nothing to inspire it. Greece returned to growth in 2014. Since January, the gains of the reforms of the last three years have been wasted.