Buiter: “It’s Five Minutes to Midnight for Greece”
This December 2009 post is a reminder of the issues at stake with Greece. It is not credible for the EU to lend psychological and political support given the debt loads now burdening the Greek government. More is needed, either financial support, debt guarantees, or austerity – most probably all of the above.
Incoming Citigroup Chief Economist Willem Buiter believes Greece still has it within their means to prevent a national default. In the video below, he discusses with Bloomberg what the crisis in Greece means not just for the Greeks but also for the Brits, Americans, Irish, Portuguese, Italians – all of whom have less than ‘pristine’ government finances. What happens in Greece is pivotal for the global economy because a default there would likely trigger distress elsewhere.
As for talk of unsustainable deficits, it seems premature to start worrying about inflation and higher interest rates when we are still in a deflationary environment. I don’t buy Buiter’s arguments on Labour’s loss of fiscal credibility mandating some pain upfront. Government should wait until it sees the ‘whites of inflation’s eyes’ before firing anti-stimulus bullets. And if they do begin firing, addressing future liabilities (everywhere) or military spending (US only) is just as effective as cutting other present discretionary spending.
Buiter’s video is below