As Tensions Rise, Here Is a Middle Ground Proposal for Greece

This is the carrot and stick equivalent of debt negotiations.
As Tensions Rise, Here Is a Middle Ground Proposal for Greece
A man waves a EU flag as pro-Euro protesters take part in a rally in front of the Parliament on June 22. 2015 in Athens, Greece. (Milos Bicanski/Getty Images)
Valentin Schmid
6/24/2015
Updated:
6/24/2015

On the other hand, creditors also do not seem to want to continue giving Greece a helping hand.

German central bank executive board member Joachim Nagel said at a press conference in Frankfurt: Giving Greece another debt relief “sets the wrong incentive for other countries … At this stage, a second debt relief would set the wrong incentives, especially for governments that are already weak,” according to Market News.

Dennis Snower, an American professor at the University of Kiel, Germany, thinks the solution could be in the middle.

“The ECB [needs] to assess realistically Greece’s lack of solvency and so stop providing [emergency] funds to its banking system. This would precipitate a payment crisis for Greece. But, recognizing the impending disaster, Greece would genuinely commit itself to the structural reforms that are in its own long-term interests: boosting the labor market’s flexibility, selling state-owned enterprises that most other European countries have already placed in private hands, and spending less on public-sector bureaucracy,” he writes.

So, by forcing Greece to actually commit to genuine reform (this is what the IMF tried to do with its proposal), creditors could then provide some leniency with debt repayments.

“Its creditors would agree to another one-time debt write-off—large enough to enable Greece realistically to repay its debts in the future, but small enough to avoid unnecessary transfers of credit. Greece would remain within the eurozone, having lost some of its fiscal and structural sovereignty.”

If Greece doesn’t agree to reform, even Snower thinks the only option is to default and leave the eurozone—and start from square one.

Valentin Schmid is a former business editor for the Epoch Times. His areas of expertise include global macroeconomic trends and financial markets, China, and Bitcoin. Before joining the paper in 2012, he worked as a portfolio manager for BNP Paribas in Amsterdam, London, Paris, and Hong Kong.
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