Debt Relief for Greece-A Bad Idea

On July 7th, 2015 in The Nation, Thomas Piketty, Jeffrey Sachs, Heiner Flassbeck, Dani Rodrik, and Simon Wren-Lewis wrote an open letter to German Chancellor Angela Merkel urging her to cut Greece debt “to avoid further disaster”.  I think that cutting Greece’s debt would be the wrong thing to do for several reasons.

First of all, if Chancellor Merkel were to cut Greece’s debt, Germany could end up losing some or all of the $68.2 billion euros that were given to Greece in order to assist them with their current economic troubles.

There are many times that a country and or group of countries lends money to another country in financial trouble and they never see most or all of the money that was lent.

Chancellor Merkel must not relent her position on not giving Greece debt relief especially if Greece needs more money in a third bailout.  Greece must understand that the money is not being given to them for free but being lent to them.

The countries that lent Greece the money for the bailout need some but preferably all of the money repaid back at some point so that each country can use the money to address its needs.

Most importantly, if Chancellor Merkel were to relent her position and grant Greece debt relief when it looks like they will need a third bailout, it will send the wrong message to countries that need bailouts from the European Commission, the European Central Bank, and the International Monetary Fund in the future.

The message is: We will lend the country the money but they don’t have to worry about paying it back because, at some point, debt relief will be granted and none of the loan or only part of it will need to be paid back.  That’s a wrong message to send and it can lead to lots of trouble for the lending countries in the future.


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