The Default Option - Cancelling the Odious Debt

Tom McDonnell: We have seen again in the last few days that the troika are a not a monolith. They disagree quite fundamentally on many issues.

It is widely understood that the debt crisis professionals (the IMF) were overruled at an early stage by the debt crisis amateurs (ECB/European Commission). Greece was originally prevented from defaulting and then not allowed to default to a sufficient degree to restore its debt dynamics to a sustainable path. A second default is now certain within the next eighteen months.

According to Der Spiegel the inevitability of the second Greek default is well understood in Brussels and Berlin as indeed it must be to any competent analyst.

Ex-IMFer Ashoka Mody has an excellent piece in today's Irish Times making the case for defaults in the European periphery. Defaults are an entirely normal (even expected) thing when it is clear that debt levels have spun out of control.

Over at the Irish Independent Stephen Kinsella makes the case - articulated repeatedly on this blog and indeed on many other blogs - that the promissory note payment to the IBRC should not be paid on 31 March. I would echo Stephen's reference to this debt as 'odious'. The government failed to get a deal last year. Months of pleading have gotten them nowhere and the working group is missing in action. TASC's position is that the promissory notes should now be immediately suspended pending a full renegotiation. It is time to start rethinking the debt default option. Reducing the debt burden is an essential component of a Greek recovery and failure to strike an acceptable deal on the legacy bank debt will delay Ireland's recovery for years to come.

Posted in: Economics • Banking and finance

Tagged with: promissory notes • debt restructuring

Dr Tom McDonnell

Tom McDonnell is senior economist at the NERI and is responsible for among other things, NERI's analysis of the Republic of Ireland economy including risks, trends and forecasts. He specialises in economic growth theory, the economics of innovation, the Irish and European economies, and fiscal policy. He previously worked as an economist at TASC and before that was a lecturer in economics at NUI Galway and at DCU. He has also taught at Maynooth University.

Tom obtained his PhD in economics from NUI Galway.