Twenty-six members of the faculty at the London School of Economics (LSE) have called for Greece’s creditors to ease the austerity measures they have imposed over the last five years.
In an open letter, the professors write, “The institutions have to agree to a relaxation of fiscal austerity, at least until Greece is on the recovery path. Austerity during a recession is the wrong policy as it deepens the recession.”
The researchers and professors say more austerity would be bad for Greece and the creditors because it would lengthen the amount of time Greece would need to repay its debts. They call for more money to be made available to Greece.
“Providing more funds for investment projects that can improve the infrastructure and create jobs should be given priority,” they write.
Greece has imposed severe austerity measures, including reductions to pensions, which have crippled the Greek economy, imposed hardship on millions and made it more difficult for the country to pay its debts. Unemployment is more than 25 percent and Greek economic output has shrunk by about 30 percent since 2008.
But the creditors, including the European Union, the European Central Bank, and the International Monetary Fund, have called for more austerity, which they believe will put Greece on a more sound financial footing for the future.
The creditors are withholding additional loans that would enable Greece to pay the interest on existing loans, and the European Central Bank has restricted the routine provision of euros to keep Greek banks solvent and enable ordinary depositors to withdraw their money.
Greek banks have been closed, and depositors are only allowed to withdraw 60 euros ($66) a day from automatic teller machines.
Meanwhile, the Greek government led by the leftist Syriza Party, elected in January, has held firm in demanding better terms and refusing to impose more austerity. Greek voters supported that position last Sunday by a vote of 60 percent to 40 percent in a referendum.
There has been a debate among economists for years about whether austerity is good for troubled economies like Greece. More and more have come to believe, though, that austerity is hurting more than it is helping. That view is not shared by Greece’s creditors.
'Credible proposals' needed
The LSE faculty members call for Greece to make “credible proposals” to make what they term “further structural improvements.” They say those reforms should include, “pensions and VAT, anti-corruption, tax compliance, and institutional reform of product and labor markets.”
They say a good plan for the future would provide stability for investors, and should be enough for the creditors to loosen controls and end the current crisis.
The creditors have set a deadline of Sunday for a solution, and if there is not one by then, experts expect Greece to have to start issuing some sort of certificates to pay salaries and pensions, certificates that would amount to a form of currency.
That could be the first step in Greece leaving the euro currency system, something both sides say they want to avoid.
The LSE letter says, “The consequences of Greece leaving the Eurozone are highly uncertain and could very well be detrimental both for Greece and the Eurozone. To avoid Grexit [a Greek exit], it is essential that both the creditors and the Greek government act in an economically responsible manner.”
The faculty members say that means taking steps to put Greece “on a sustainable growth path.”