From Greece's perspective: do we need to cut debt?
Michael Heise: With a bit of economic growth, Greece is certainly in a position to get to grips with its debt. The country reported slight growth in 2014 and there is a good chance that the upward trajectory will stabilize in 2015. Greece has become more competitive; exports and tourism are on the rise and the budget is virtually balanced. Even the country's high unemployment rate has been falling at least slightly for months now.
Greece would benefit more from further assistance than from debt cancellation, which would put paid to any willingness to provide support. But for this sort of assistance to be provided, the reforms and savings efforts made in the past cannot be thwarted entirely. It would be helpful to use an EU growth program to support Greece. An additional project volume worth even a few billion euros would give the Greek economy real impetus.
Would it not be a lot easier to simply release the country from its obligations?
Michael Heise: Greece has already received a great deal of assistance. After private investors accepted a haircut to the tune of 107 billion euros in 2012, around 80 percent of Greece's sovereign debt is currently financed by public-sector creditors, i.e., taxpayers outside of Greece, with extremely low interest rates and very long maturities. Principal and interest repayments on some of the loans have been waived for ten years. There are political limits to economic assistance. The government debt ratio is high, but with interest rates as low as they are at the moment, there is no need for a haircut.
How are other European countries coping with the debt burden?
Michael Heise: At four percent, the average interest rate on government debt in Portugal is much higher than in Greece with 2.4 percent. Nevertheless, the country is not asking for any further assistance and has managed to convince the markets, too, that it can successfully tackle its own problems, as is shown by its long-term bond issue. Greece also has a chance to make a successful return to the capital markets. The budget is virtually balanced, the primary budget is generating a surplus again and the economy is back on the path to growth. The thing that currently puts access to the capital markets out of reach for Greece is the uncertainty surrounding the future economic policy course.
