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Joseph Stigiltz calls for US to intervene over Greece

Joseph E. Stiglitz, Ph.D

(Newsweek) – Nobel prize-winning economist and former chief economist of the World Bank Joseph Stiglitz has predicted “depression without end” if the austerity programme in Greece continues and called on the US to be “generous with our friends in Greece” as it once was generous with Germany after the Second World War.

Writing in Time magazine Stiglitz calls on Germany and the US to remember the past and claims that Germany has engaged in “propaganda” by portraying Greece not sympathetically but as “a long-failed state that refuses to go along with the minimal conditions demanded in return for generous aid.”

Germany’s foreign debt, amassed from First World War reparations was famously halved in 1953 by creditors which included Greece, the US, the UK and Spain. The US also contributed $13bn to rebuild European states’ infrastructure, industry and economies – known as the Marshall Plan – with Germany among the largest recipients of aid, receiving approximately 11% of the sum.

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“As the Greek saga continues, many have marveled at Germany’s chutzpah,” Stiglitz writes. “It received, in real terms, the largest bailout and debt reduction in history and unconditional aid from the US in the Marshall Plan. And yet it refuses even to discuss debt relief.”

The Syriza-led Greek government is currently being pressed to submit a plan for harsh economic reforms to its creditors by midnight tonight so that it can be reviewed in time for Sunday’s summit between EU leaders. A decision on whether the plan will be approved and Greece issued a loan or bailout extension is due Sunday. Failure to reach a deal is likely to leave Greece with little choice but to leave the eurozone as the country’s banks run out of money.

“The Greeks took austerity to heart, slashing expenditures and increasing taxes,” Stiglitz writes. “Their depression… is because they did what was demanded of them, not because of their failure to do so. It was the predictable and predicted response to the austerity.”

A Greek default would not, in Stiglitz’s eyes be a failure of the Greek government’s functions but rather of the European Central Bank’s (ECB) and he calls on the US Federal Reserve to “create a swap line with Greece’s central bank”.

“Greece needs unconditional humanitarian aid; it needs Americans to buy its products, take its vacations, and show a solidarity with Greece and a humanity that its European partners were not able to display,” Stiglitz writes.

Stiglitz claims that should Greece lose the euro it “may not be easy” but it would not be “the end of the world” for Greece, citing the example of Argentina’s decision to unpeg their peso from the US dollar’s hard currency instead of introducing more cuts to pay off debt.

“The euro is just a 16-year-old experiment, poorly designed and engineered not to work – in a crisis money flows from the weak country’s banks to the strong, leading to divergence.”

Stiglitz joins a growing line of economists who have accused Germany and the EU of imposing impossible austerity demands on Greece which were doomed to fail, as French economist Thomas Piketty and four of his colleagues addressed an open letter to chancellor Angela Merkel saying more austerity would “kill off Greece’s future” and that of “the eurozone as a beacon of hope, democracy and prosperity”.

US Treasury secretary Jack Lew gave his clearest endorsement yet that debt restructuring was in some form on the cards for Greece as he said last night that whether “Europe will restructure the debt in a way that is more sustainable” is a matter of building trust between creditors and Greece over the next few days, the Guardian reports.

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