Top Community Economists Weigh-in on Greek Crisis Developments

NEW YORK – Hellenes are well-represented in the ranks of economists around the world – Christopher Pissarides won the Nobel Prize in 2010, and Greek-Americans among them have been monitoring and publishing on the Greek crisis.

The National Herald communicated with three distinguished Economists after this week’s Greek referendum, including Charles W. Calomiris, Henry Kaufman Professor of Financial Institutions at Columbia Business School, and Nicholas S. Economides, Professor of Economics at NYU’s Stern School of Business.

Dr. Rania Antonopoulou, a Greek-American economist who is a Member of Parliament with SYRIZA and is serving Greek Alternate Minister for Combatting Unemployment, was also in contact with TNH.

Economides was blunt: “Right now the situation in Greece is extremely critical…Greece is in deep trouble. The banks have been closed for 10 days…The roads are empty and the stores also, except for the supermarkets.”

“An agreement must be reached in a few days, because of the condition of the banks and because they will not be able to pay the civil servants on July 15.”

He thinks “the probability in not very high – 20 percent – but that is not negligible… the referendum, however, has increased the probability of going to the drachma, and that will be a disaster.”

“People in New York don’t understand how much more critical the situation is now than it was a year ago,” he said, but rather than turn the election into a vote of no-confidence in Prime Minister Alexis Tsipras for the way he has handled matters,” Economides said, “people voted emotionally. They say ‘we don’t want the Germans to tell us what to do anymore.’

“What is perplexing, verging on the tragic is that near the end of the most recent round of talks, the Greek proposal and the creditor’s proposal were extremely close…the creditors thought the deal would be closed soon…’maybe we’ll give you something on the debt, a sweetener, and the deal is done,’” Economides believes the troika was thinking.”

“And then suddenly Tsipras said “no, I will do a referendum.”

Economides said he did that to attempt to avoid a split in SYRIZA, and that “In a very cowardly way, he put his party first and his country second…he went to referendum to avoid taking responsibility.”

He believes the vote hurt the Greek position, because the bailout memorandum was allowed to lapse. “Now we must create a new agreement from scratch, and the parliaments of 19 counties must ratify it, which is much harder than making an amendment to the previous agreement. That is a huge step backwards for Greece.”


The original memorandum has two parts, Economides said: the fiscal part with austerity measures to balance the budget, and the reforms part. “The creditors pushed much harder on the fiscal part. Maybe they thought the reforms would happen automatically because it was to the benefit of the Greeks, but it didn’t happen that way,” he said.

The problem was that various groups, even collections of as few as 5000 who benefitted from the status quo, could block reforms that would be good for 11 million Greeks.

“SYRIZA and the communists said they did not want any changes, even changes aimed at the rich,” because they thought that once reforms began anywhere, eventually their own turf would be invaded.

“There is a deeply rooted mentality” that is against change. There is also in Greece an emphasis on egalitarianism “even if it means mediocrity,” he added.

One area the left battles directly is labor market deregulation. Economides agrees that there are countries in Europe, France for example, whose practices lay in between those of the much less regulated U.S. and the more rigid Greek rules that prevailed before the crisis that SYRIZA wants to return to, but there no evidence of progress in an area foreign investors see as a deal breaker.

Calomiris exchanged emails with TNH and in an article published in Forbes magazine said “Even if the Greeks had voted yes, it was doubtful that they could have remained in the eurozone.”

Debts and deficits are not its root problems, he says. Greece’s economy is simply uncompetitive, which “reflects institutional flaws that the Greek people have shown little interest in fixing – inflexible labor laws that discourage hiring, anti-competitive business licensing laws and regulations that protect inefficient cronies, and little will to tackle corruption,” according to Calomiris.


Sadly, “One could also add that there is no evidence of potential political leadership that is capable of articulating these problems much less credibly confronting them…Current leaders display a combination of juvenile thinking about economics, a strange rapture about Cuban communism, and a counterproductive need to put a thumb in the eye of Germany at every opportunity.”

His criticism is accompanied by solutions, however. Calomiris’ approach combines two policy initiatives: redenomination – an internal devaluation of 30 percent while still in the Eurozone – and competitiveness reforms.

Redenomination entails “government action to write down the value of all euro-denominated contracts enforced within Greece,” making “all existing contracts – wages, pensions, deposits, and loans – legally worth only, say, 70% of their current nominal value.”

He says this kills several birds with one stone: It would “significantly reduce pensions…satisfying Troika demands for fiscal sustainability,” but in a way that would also mitigate the purchasing power consequences for pensioners, because an across-the-board redenomination would lower prices throughout the economy…By applying redenomination to deposits and loans, banks’ health would be revived.”

Greece must also move towards matching “the long-term productivity growth of Germany and other members,” though major reforms to labor laws and competition policies, and a credible war on corruption, as Hong Kong’s did in the 1970s.

“In the case of Greece today the key is to involve its European partners (who would play the role of the UK in Hong Kong in the 1970s) to establish a separately funded and administered anti-corruption commission with full legal authority. The first goal of such a commission would be a thorough reform of Greece’s corrupt courts and civil service,” he said.

If Greece took these steps, Calomiris believes the troika would be willing to “substantially reduce Greece’s unbearable debt burden, as the IMF has recognized is necessary, and also provide the short-term liquidity to allow its banks to reopen.”


Antonopoulou, communicated with friends on Facebook the day after the referendum: “I thank you all for your messages of solidarity with our people. Yesterday is gone and with it the time of confrontation must be left behind… There is still time, but for that swift action and political maturity must prevail… Debt restructuring is possible. The IMF certainly thinks so.”

To TNH, she said: “The common objective is to seek a solution which will ensure: 1) The adequate coverage of the financial obligations  of the country, 2) Reliable reforms, based on the fair distribution of burdens and promoting development, with the least possible recessionary effects. 3) A Powerful, front-loaded, development program, primarily for combating unemployment and encouraging entrepreneurship. 4) Commitment to start substantive discussion on dealing with the problem of sustainability of the Greek public debt”.
Antonopoulou, who is director of the Gender Equality and the Economy program at the Levy Institute of Bard College, continued  on Facebook,  “We must move forward with political wisdom and responsibility. Our government and our EU partners-lenders must work hard to prove that the European project is alive and well, and that rationality will prevail. A defeat for Greece will be a disaster for all parties involved… Decision-makers must bear the full responsibility of actions taken and I hope they feel the weight of history as they contemplate every step they take,” she said.

She also offered an exhortation: “So dear friends, come visit us!!! Spread the word – we are here, here to stay. And while the negotiations are on, yes, we are open for business!”



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