Social Europe: Why Greece Could Have Returned To Financial Markets Much Earlier

Those developments come into sharp contrast with the pursued objective of a nominal debt haircut in spring 2015 when then finance minister Yanis Varoufakis called for various changes in European monetary architecture through the issue of Eurobonds to resolve the Greek crisis. He sought a New Deal-type of solution via an international debt reduction conference reminiscent of the 1953 German arrangement of its post-war debt and perpetual bonds. All those proposals were rhetorical exercises because they shared the same fatal flaw, that is, they depended on the willingness of international lenders to concede favors without achieving any fiscal discipline on the part of the Greeks. Finally, Varoufakis and his team pushed for an unconventional double system of domestic payments with a shadow currency, contrary to ECB rules, which was massively risky for liquidity and would inevitably result in a Grexit and a return to drachma, while its possible implementation would have strained democracy in the country with unpredictable consequences. [...]

Diverting from this impassioned chapter in recent Greek history, we here highlight instead a policy lesson that was never discussed before: that back in 2015, the option of a return to international financial markets, which is now central to seizing political and economic gains, was wide open. However, blind with maximalist posturing and wasting time with vain plans, the Greek government failed to capitalize on this path because the blame was conveniently put on “others”, that is, on lenders.

In retrospect, the return to financial markets was the sensible approach to follow although it would have involved the adoption of structural adjustments dictated by the lenders. Was there an alternative path to liberate the country early on from lenders’ demands in return for their financial support lines? In my view, there was further room for maneuver through the issuance of structural adjustment-linked bonds based on policies determined by the Greek government alone.

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