Without significant progress at the Eurogroup meeting this week, is Greek default inevitable?
Sam Bowman is deputy director of the Adam Smith Institute, says Yes
No country has pulled back from a peacetime debt-to-GDP ratio as high as Greece’s 175 per cent without defaulting. Its options are to grow out of debt, default unilaterally, or restructure its debt in cooperation with the Eurogroup. With the last of these off the cards, it may push for growth. But the country is in a state of near-perpetual deflation, which means that, even if it did have growth, it would still not be enough to boost its nominal GDP growth to the 4.9 per cent the Eurogroup believes is needed to start paying down its debts. Big supply-side liberalisations seem unlikely under Syriza, and certainly not on the scale necessary to deliver the growth a deflationary Greece would need to change its borrowing trajectory. However, absent debt servicing costs, it is running a budget surplus. If it defaulted, it may not need to worry about borrowing for now. If debt restructuring is truly off the table, a unilateral default may look very tempting.
Dr Holger Schmieding is chief economist at Berenberg, says No
Rarely has a new government done so much damage so fast. With unaffordable election promises and scary antics once in office, the populist coalition in Athens has driven €50bn (£36bn) of capital out of the country within three months and aborted the Greek recovery. Greece’s creditors rightly insist that Prime Minister Alexis Tsipras gets real before releasing more money. Having just raided the coffers of local governments, Greece can probably pay all its bills until a big €800m payment to the IMF is due on 12 May. Failure to make progress on 24 April would thus not lead to default. But if Tsipras is still dragging his feet in mid-May, it could get very tight. Deadlines in Europe are usually flexible. A hard deadline for Greece will come eventually – but we are not there yet. The country still has a few weeks to realise that Europe is not bluffing: more money only if it returns to reforms that make its economy more, rather than less, flexible.