Haircut Failure

C. J. Polychroniou delivers his verdict on the recent eurozone “haircut” deal for Greece (that already looks likely to fall apart given yesterday’s news that Papandreou will submit the plan to a sure-to-be-defeated referendum).  In this new one-pager, he highlights a number of elements that make the deal destined for failure—even if the referendum were to succeed.  The most glaring flaw, says Polychroniou, is the absence of any credible plan for growth (and as the leaked “troika” document reveals, even some policymakers in the eurozone are coming to admit that “austerity!” does not constitute such a plan):

More fundamentally, a 50 percent haircut alone will not solve the Greek debt problem. When all is said and done, neither recapitalizing European banks nor turbo-charging the EFSF (especially with dubious schemes) can credibly resolve the eurozone crisis without also enacting policies to promote long-term growth. And at this stage, the only viable and immediate solution to reviving the economies of Greece and the other European member-states is through public spending and quantitative easing. But these are policies that are precluded by Germany’s incorrigibly stubborn disposition toward expansionary fiscal consolidation.

Read the one-pager here.