Greek Debt: Do the Right Thing

In Greece, any meaningful change in debt terms needs to be part of a wider plan that deals with the underlying structural imbalances of the eurozone, just as a comprehensive plan was necessary for post-World War II European prosperity.
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"Greece's government and people have indulged in excesses and corruption; now it is time to pay the price." The argument for full repayment of Greece's debt is well known, easily understood, and widely accepted, particularly in Germany. Sacrifice, austerity and repayment are righteous, fair, and just.

That view is coloring this and next week's coming meetings between Greece and its international lenders, and with European leaders. A revision of Greece's debt terms has not been on the agenda.

European leadership insists that repayment is possible, and that Greece's economy will take off, if only Greeks are willing to bite the bullet and economize. The quasi-religious ground under the wishful thinking on economic growth is that with deep financial pain comes high moral ground.

Exactly the opposite case makes far more sense: It's immoral to ask for widespread, long-term destitution in Greece in return for unaffordable debt payments.

Restructuring the debt would be the more virtuous route even if there were a plausible scenario under which Greece could repay the enormous amount due -- there isn't -- and even though corruption, tax evasion, dysfunctional government and, at certain periods, excessive spending, have undeniably been problems.

What makes changing the terms of debt repayment an ethical imperative, given those circumstances?

The economist John Maynard Keynes made probably the most powerful case -- certainly the most eloquent -- for large-scale financial forgiveness when, at the 1919 conference to end WWI, the Allies required a destitute Germany to make reparations.

As a member of the British delegation, Keynes countered the view of the war's winners that it was right and just for Germany to be treated harshly, saying "The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable... even if it did not sow the decay of the whole civilized life of Europe."

He added, "Justice is not so simple. And if it were, nations are not authorized, by religion or by natural morals, to visit on the children of their enemies the misdoings of parents or of rulers."

Keynes believed that the reparations were well beyond what Germany could possibly pay, and predicted that the fruitless demands would lead to crisis in Germany and repercussions throughout Europe.

History confirmed that the righteousness of the Allies would eventually end in failure, with the ruined German economy a major factor in the rise of Nazism.

While historical analogies are always suspect, there are at least a few parallels here, as well as an undeniable irony or two, and maybe a touch of hypocrisy.

Greece has endured five years of righteously fueled austerity policies. The sole goal has been high fiscal surpluses to improve its debt-to-GDP ratio.

On the street, that has meant a brutal economy where more than half the population is hungry, the suicide rate has increased 35 percent since 2011, and hundreds of thousands of households can't afford electricity. 'For the misdoings of parents or rulers,' young people have reached an unemployment rate of more than 50 percent.

The current approach has resulted in the largest peacetime decrease in GDP of any developed country in modern history. To continue the current repayment programs would mean more of the same -- and an even deeper recession.

Millions of Americans have learned that there are times when demands for full repayment are both cruel and infeasible, and that a broader solution is necessary for both the individual and the surrounding community. In Greece, any meaningful change in debt terms needs to be part of a wider plan that deals with the underlying structural imbalances of the eurozone, just as a comprehensive plan was necessary for post-World War II European prosperity.

In the aftermath of that war, Germany was the beneficiary of the largest debt restructuring deal in history. Today, German leaders have positioned themselves as the moral gatekeepers of justice in Europe, with a firm stance against any debt forgiveness. Of course, debt cancellation after WWII was one of the primary drivers of the German so-called "economic miracle."

A solution for Greece and the eurozone doesn't require miraculous intervention. All that's needed is for Europe to reset its moral compass to do the right thing, beginning with a rethink on the complexities of justice.

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