As the eurozone’s finance ministers gather in Luxembourg to decide whether to provide Athens with some €2.8 billion in bailout funding, it is important to remember that sky-high public debt is not just a Greek problem, but a broad one afflicting a large swath of the European Union.
Austerity politics has had a negative impact across the entire European South. Suffocating fiscal policies have weakened the role of the state, minimized the positive effect of social policies, damaged macroeconomic figures, and impeded investments.
Big European economies — including Italy, France and Spain — face serious burdens in paying their debt. In 2016, the average debt-to-GDP ratio for all three countries reached a barely sustainable 109 percent. Meanwhile, the eurozone’s average growth rate has remained stubbornly below 2 percent — dragged down by the general financial environment.
As a result, growth-oriented policies cannot produce a positive output in the economy, even if investment-friendly laws are passed by the national parliaments. Amid this general malaise, the only EU member state that has been able to maintain a large trade surplus is Germany.
It is in this context that short- and mid-term measures of debt relief for Greece must be considered. A deal must be made concrete by end of the year, so that the painful overhauls Athens had made to the economy can be translated into sustainable growth.
Providing Greece with debt relief could trigger similar negotiations for other member countries and allow some of the eurozone’s larger economies to pull the Continent out of stagnation.
Providing Greece with debt relief could trigger similar negotiations for other member countries and allow some of the eurozone’s larger economies to pull the Continent out of stagnation. This would take strong, cross-party alliances in the EU Council and the European Parliament and the acknowledgment that unsustainable debt can fuel a political crisis.
The governments of France and Italy are facing political backlashes against austerity. These populist movements that combine controversial economic positions, including the possibility of exiting the eurozone or unilaterally writing off public debt, with xenophobic rhetoric against refugees.
Meanwhile, across Europe, there are mounting concerns about the future of the European establishment, economic governance, and the need to boost economic growth and employment rates.
Greece’s creditors are, for the moment, divided on the issue of debt relief. Italy and France are supportive of Greece, conscious that reaching a deal could serve as a starting point for tackling their own debt. In the EU, Economics Commissioner Pierre Moscovici, European Commission President Jean-Claude Juncker, and European Financial Stability Fund chief Klaus Regling favor a debt relief agreement on short- and mid-term measures by the end of 2016.
The International Monetary Fund similarly favors debt relief, acknowledging that Athens’ burden is unsustainable, even if it is demanding further budget restrictions at the same time. The United States has broadly endorsed the IMF’s position, pressing for a solution by the end of the year, eager to keep the eurozone steady after the shock of the Brexit referendum.
The staunchest opponent to a deal is, unsurprisingly, the German government. Putting domestic politics over international stability ahead of federal elections in the country next year, it wants to delay any decision on Greek debt. German Finance Minister Wolfgang Schäuble argues that Greece’s problem is not its public debt, but its competitiveness gap. What he delicately ignores is that a country’s competitiveness is not independent from its debt burden, especially if it is unsustainable.
For Greece, the solution is clear. Athens has done its part, doing whatever it takes to honor its commitments under the bailout, which included an agreement by its creditors to make its debt burden sustainable. It is time for the European institutions to keep their side of the bargain.
Dimitris Papadimoulis is a vice president of the European Parliament and head of the Syriza delegation. He tweets at @papadimoulis