Paul Krugman on Greece: "There will be no consolation prizes for failing conventionally"

Greece will never be held in high esteem by "the Davos set," argues the economist in the New York Times

By Joanna Rothkopf
Published February 9, 2015 2:28PM (EST)
 Paul Krugman                                                                                                                (Screen shot, Bloomberg)
Paul Krugman (Screen shot, Bloomberg)

Greece and Germany's economic stand-off is reaching a boiling point largely because of a misunderstanding, argues Paul Krugman in today's New York Times.

Pressure is mounting for Greece to negotiate a deal with its creditors, which include the European Commission, the European Central Bank, the International Monetary Fund and the country of Germany, primarily out of fear that the Mediterranean country will default on its debts. On Sunday, Prime Minister Alexis Tsipras noted that he was committed to ending the bailout program and with it, the strict rules of austerity.

On Thursday, relations between Greece and Germany took a nosedive as Greek Finance Minister Yanis Varoufakis said that he and the German Finance Minister Wolfgang Schäuble could not "agree to disagree" about how to solve Greece's flailing economy.

Krugman argues that tension between the two countries is actually due to a dangerous misunderstanding:

What Greece is asking for -- although German voters probably don't know this -- is not a fresh infusion of money. All that's on the table is a reduction of the primary surplus -- that is, a reduction in Greek payments on existing debt. And we have often been told that everyone understands that the official target surplus, 4.5 percent of GDP, is unreasonable and unattainable. So Greece is, in effect, only asking that it get to recognize the reality everyone supposedly already understands.

Then why the pushback? Krugman cites an argument from Matthew Yglesias: international creditors would rather see Greece do something unpopular among its own citizens than something unpopular for the "international community."

But Greece is a legitimate government of the left, and will likely never be respected by "the Davos set." "The new Greek leaders will succeed or fail, personally based on what happens to Greece," Krugman writes. "There will be no consolation prizes for failing conventionally."

Joanna Rothkopf

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Related Topics ------------------------------------------

Bailout Creditors Debt Germany Greece New York Times Paul Krugman