Bernie Sanders photo

Remarks with Joseph Stiglitz, James Galbraith, and Stephanie Kelton in a Discussion on the Greek Debt Crisis

July 30, 2015

SANDERS: Please let me—I'm Senator Bernie Sanders and let me—let me thank all of you for coming out this afternoon to discuss an issue of enormous consequence and something I think we don't quite focus on as much as we might here in the United States.

And I'm especially pleased that we have a great panel, who will help us discuss the issue. And on the panel will be Joe Stiglitz, who is a Nobel Prize-winning economist, chief economist at Roosevelt Institute and Professor of Economics at Columbia.

We have Jacob Kirkegaard, who's the senior fellow at the Peterson Institute for International Economics. We have James Galbraith, Professor of Government at the University of Texas.

And have Stephanie Kelton, who will be the moderator, who is the former chair of the Economics Department at Kansas—Kansas City University, and is the chief economist for the minority on the Budget Committee.

We think perhaps we have the ambassador here. OK, and we thank Ambassador Panagopoulos very much for being here and I'm going to get you up here in a moment.

What we are here today to talk about is the very, very important issue regarding the ongoing debt crisis in Greece and the way that people in governments all over the world are struggling with too much debt.

This is—we're going to be focusing on Greece, but in truth, this issue goes beyond Greece, and countries that are struggling not only with too much debt, too much inequality, and too little growth in income.

Today, as I think all of you know, there is a very, very serious economic situation unfolding in Greece. In many ways, Greece today resembles the United States in the 1930s, in the midst of the worst depression—economic downturn in the history of our country.

The Greece economy has basically collapsed and the people of Greece are trapped in a very, very deep depression. I want to begin by expressing my solidarity with the people of Greece. With five years of cruel and counterproductive austerity policies; policies demanded by the European Central Bank, the European Commission, and the International Monetary Fund have left the people of Greece facing a full-blown humanitarian crisis.

In my view, there is no more obvious example of the failure of austerity policies than what is going on Greece. For more than five years, Greece has cut pensions, Greece has slashed its government workforce, Greece has made deep spending cuts that have eviscerated its social safety net.

In other words, despite what we have been led to believe by many in the media, Greece has not gone on a shopping spree. It has not overfunded its government. Rather, it has imposed massive spending cuts that have caused devastating pain to some of its most vulnerable people.

It has done this because its creditors, led by Germany, have insisted that austerity is the only way to dig Greece out of its debt. As a result, today, Greece has the highest levels of inequality and the worst unemployment rates in Europe.

The official unemployment rate is 26 percent, 26 percent. Youth unemployment in Greece today is more than 50 percent. More than 30 percent of the people in Greece are living in poverty. And the Greek economy is 25 percent smaller—has shrunk by 25 percent over the last five years.

That is really quite incredible.

Instead of solving the problem, austerity, in my view, has made a bad situation much worse. Greece has seen its debt-to-GDP ratio shoot up from about 120 percent to about 175 percent today. And now to, quote, unquote, "fix the problem," the Troika wants Greece to borrow more money and make deeper cuts to wages, pensions, and other social programs.

In January, as you all know, the people of Greece stood up and said enough is enough. They elected a new government, known as Syriza, that promised to end the harsh austerity policies—that was their campaign pledge; by increasing their minimum wage, by increasing job production, by protecting the most vulnerable against pension cuts, and ensuring that the wealthiest people in Greece started paying their fair share of taxes, a very serious problem in that country.

But instead of working with the new government to find a rational path forward, the Troika demanded more austerity than ever.

On July 5th, the people of Greece spoke, once again, in an overwhelming show of solidarity with their government, 61 percent of the people of Greece said no to more austerity for the poor, for the children, for the sick, and for the elderly.

Yet, instead of working with the Greek government on a sensible plan that would allow Greece to improve its economy and pay back its debt, Germany and the Troika continued to push Greece to accept even greater austerity.

They want even deeper pension cuts, an increase in the regressive VAT tax from 13 percent to 23 percent, automatic budget cuts as the Greek economy underperforms, privatization of state assets, including the electricity grid, deregulation of the transportation, rail, pharmaceutical, and other sectors in the economy, weakening of trade unions.

In other words, the people of Greece are being told that their voices, which they cast in two elections, really do not matter, that their misery does not matter, that an entire generation of young people who are unemployed or underemployed does not matter, that the sick and the elderly do not matter, that democracy itself does not matter, and that, to my perspective, is unacceptable.

I believe that this plan is simply unsustainable. In my view, austerity has failed and continuing with austerity means the Greek economy will continue to fail its people, unemployment, poverty, and inequality will increase from already obscene levels.

And maybe, just maybe, some people are beginning to wake up to this reality.

In a confidential report that was made public earlier this month, officials from the IMF warned that the IMF could not take part in any new bailout for Greece unless the Greek government was offered a substantial debt-relief package as part of any new deal.

In light of this report, it is time for the Troika to provide the Greek government with the flexibility it needs to create jobs, raise wages, and improve its economy. Without a substantial improvement in its economy, Greece will never escape its debt crisis.

And let us not forget a little bit about history. Let us not forget what happened after World War I, when the allies imposed oppressive austerity on Germany—on Germany, as part of the Versailles Treaty.

And I think all of you who know anything about history understand what happened and that I the German economy collapsed, unemployment skyrocketed, people were pushing their money around in wheelbarrows to buy a loaf of bread, and the result of all of that massive discontent was that Adolf Hitler and the Nazi Party won an election and took power, and you all know the results of that.

What many people do not know about Greece today is that the party that finished third in the Greek—recent Greek election is called Golden Dawn. This is a party which some people call a Neo-Nazi Party, but other people believe that it is nothing neo about it. It is a Nazi Party, which came in third place in the recent election.

In my view, we should learn from history and we should understand that when democracy fails, when people vote for something and cannot get what the government promised because of outside forces, this leads to massive discontent. It leads to contempt for democracy and it opens the path for right-wing extremist parties like Golden Dawn. Finally, let us remember that one of the main reasons why Greece was unable to take on so much debt was because it had help from Goldman Sachs, who helped disguise the nature of the Greek debt.

Today, when we talk about debt, we should appreciate that something similar is happening right now in Puerto Rico, where the government there is struggling with unsustainable debt. And a group of hedge fund billionaires are demanding austerity in Puerto Rico.

They are demanding the firing of teachers, the closing of schools, so that they can reap huge profits off the suffering and misery of the children and the people of Puerto Rico.

It is time for creditors to sit down with the governments of Greece and Puerto Rico, and work out a debt-repayment plan that is fair to both sides. The people of Greece and the children of Puerto Rico deserve nothing less.

Over seven years ago, the major economic leaders of 44 countries gathered in a hotel in Bretton Woods, New Hampshire, to establish international economic and financial rules. As a result of that conference, the International Monetary Fund and the World Bank were established.

I think it is clear to anyone who has taken a look at this situation that the rules regarding our international financial system today are rigged in favor of the wealthy and the powerful, at the expense of everyone else.

Today, 85 of the wealthiest people in this world own more wealth than the bottom half of the world's population, over 3 billion people. By next year, Oxfam has estimated that the top 1 percent of the world's population will own more wealth than the bottom 99 percent of the world's population.

In my view, we have got to begin—and I hope this forum today is a start in that process; a serious discussion about how we change our international financial rules to expand—expand economic opportunity and reduce income and wealth inequality, not only in Greece and in Puerto Rico, but throughout the world.

The global economy is simply unsustainable when so few have so much and so many have so little.

It is now my pleasure to introduce, to say a few words, and we're delighted that he's with us today, Ambassador Panagopoulos. Ambassador? [applause]

PANAGOPOULOS: Thank you very much, Senator. [applause] Thank you so very much. [inaudible] [applause] Thank you so very much, Senator, for providing us—me, first of all, the opportunity to be with you today, and for bringing together this great gathering, and for being really, not only an American leader, but—but a global leader.

We need these kind of voices. And by the glance you gave us, the very basic perimeters of the plight of my country. Having the privilege—there are some that would say privilege to represent a country which I think quite easily would win the subtitle of the number 1 victim of the 2008 economic crisis, I can subscribe to the whole of your presentation.

Let me tell you, you—you tell us in the most right way what the situation there it is, doubled our GDP, 25 percent unemployment, 25 percent-plus, the youth unemployment, a horrific number, close to 60 percent.

All this tells that this is not only the labor. This catastrophe, it's not only a labor of our mistakes, which of course they exist. No question about this. We do need reforms. I know of no nation who doesn't need to change reforms, but which kind of—of reforms.

You just posed the problem, what the reality—the substance of the problem is there.

I've been present in countless European councils, trying to solve, from the very beginning, the Greek crisis. My impression, always Brussels came too little, too late. I hope this time is not like this, but at the last agreement we had with our creditors, it looks like they begin , and you described some of them; some charter recessionary dimensions in this program.

But let me tell you that we're determined to work as partners, not as enemies, and find a way out. It won't be easy. That's why we look forward to this discussion with world-famous personalities from the academic world, Professor Stiglitz, Professor Galbraith, and others to give us their expertise and help us with ideas.

And, Senator, let me tell you that we'd like to thank you so very much for your solidarity, your ideas, your intervention. They are most welcome from - from us. I would like to bring you best regards from [inaudible] and my government also.

And let me close with some—somehow—some more bright remarks. First of all, we have a sense back in Greece that we have—and this is not far from reality; we have somehow better understanding and support here, this part of the [inaudible].

Why? Probably the answer lies in the fact that you are the only ones who dealt successfully [inaudible] through the Great Depression and you don't try to bring recipes that they do not work. In other words, you don't take out the oxygen of an economy that is collapsing.

The second one is a more bright one, that if we put these things behind us, and it will take a lot of effort to do that, Greece can recover relatively swiftly. We do run economy very heavy in investor background. So, it's mainly a service economy and if we get the right decisions, in a relatively short time, we can come back.

Why? It's our geographical position, our geopolitical role there, building bridges centuries long, with all our environment, starting from Iran to the Arab world to our Israel friends, the Balkan countries. That creates a neighborhood, very promising, and we're in the heart of this, having the best relations with all this environment.

So thank you so very much, looking forward to your discussion. Thank you very much.

SANDERS: Thank you, Mr. Ambassador. [applause]

OK, I'm going to give the mike over to Stephanie Kelton. Stephanie?

KELTON: [off-mike] Excuse me. Thanks, boss. [laughter] Thank you all for coming.

Thank you, Senator Sanders, for coming up with the idea to—to do an event like this. He's been just very, very interested in Greece for a long time now. And so I appreciate very much the ambassador finding time in his schedule, and all of the panelists, as well, for agreeing to take part in what I think will be a very important discussion.

What we're going to do is invite each of the panelists to say a few words. We'll try to keep comments to five to seven minutes or so, and then we'll began a—a back-and-forth discussions, hopefully leaving just a little bit of time at the very end for some audience Q&A.

All right, we'll begin with Professor Stiglitz.

STIGLITZ: [off-mike]

Well, thank you very much for—for calling this meeting, Senator Sanders, and—and the issue's a really important one.

Greece is important for the United States. It - it is—location is important for our security. As the senator pointed out, there's a basic sense of solidarity, a solidarity that's based on—on a long friendship. And there's a—importance of democracy. And I think we also need to recognize some aspects of our special culpability. The senator mentioned the Goldman Sachs. We have to also remember that we did play a role in, once before, destroying the democracy and unseating the—the—the Colonel —the Colonel was unseating the Papandreou government in 1967.

And I've watched, very carefully, the recreation of democracy in Greece and have been deeply, deeply disturbed by the fact of what amounts to the attempt by the European authorities to undermine democracy in Greece.

So this is an issue about economics, but it's also an issue of basic democracy and it's an issue about broad security, in which all Americans should have an interest.

I want to just spend a second in putting this in a broader context. Again, the senator did this. There are so many countries, so many debt crises. And if there were just one, you could say, oh, that country didn't manage its affairs well.

But within Europe, Greece is just one of several countries that are in crisis. There's Spain, Portugal, Ireland. In the case of Spain and Ireland, they had a surplus before the crisis. They had a low debt-GDP ratio. The crisis caused the deficits, not the other way around.

And it's important to bear that in mind in all the rhetoric about the economics of this crisis.

But we have a crisis, a very similar one here in the United States and Puerto Rico. And many of the problems in the context of Puerto Rico echo what is happening in Greece.

One of the really disturbing aspects of the Puerto Rican crisis is that—we don't like to use this word, but Puerto Rico is our colony. And as our colony, we have a special responsibility.

But we constructed things so that it's neither fish nor fowl. It's neither independent, nor do we take on the responsibility of the colonial master.

So, when I was chief economist at the World Bank and we—there was the East Asia crisis, one of the things we told every country, you have to have a good bankruptcy law. And yet, when Puerto Rico decided to pass its bankruptcy law, we said, oh no, you're a colony. You can't have your own bankruptcy law.

But our congress refuses to give them a bankruptcy law. And so, here they are, with this debt beyond their ability to manage and no way out of working this out under a rule of law.

Globally, we have the same thing. We have no international rule of law governing sovereign debt restructuring. Argentina and many other countries have suffered as a result, and in some ways, Greece is suffering today as a result of that. Last September, the U.N. began—approached us, there was an overwhelming vote in the U.N. to start a process of constructing an international rule of law for sovereign debt restructuring. But unfortunately, the United States has been the major opponent to the creation of an international rule of law.

Now, I don't have time here to explain why they take on this peculiar position, given that we say we believe in the rule of law and yet vote, in the case of Puerto Rico, in the—in the context of globally, we have done everything we can to stop the creation. And it has to do with the influence of financial markets.

But, as an economist, when I see problems like this occurring over and over again, it's very natural to say, well, if only one country, you say there's a problem in the country. There's a rotten apple in every barrel.

But when you see something so systemic, you have to say there's a systemic problem and we have to study and deal with the systemic problem. Otherwise, we're going to have a problem here and then a problem there.

And that's really what this is about. What are the systemic issues? Now, I don't have really time to—to—to go through all the aspects of what can we do to prevent the recurrence of another. What I want to do is focus this afternoon on the failure of our response to the crisis, as opposed to the creation.

What I emphasize, it was not excessive [inaudible] that created the crises in Spain and Ireland and all that. And one has to see the Greek crisis in that broader—broader context.

When the crisis struck, Greece's debt-to-GDP ratio was 110, 120 percent of GDP. To put it in context, at the end of World War II, we had a debt-to-GDP ratio of 130 percent. But we didn't say that was unsustainable.

What we said is that if we could grow the economy, debt-GDP ratio would go down, because GDP would go up. Just simple arithmetic, if you can get GDP to go up then the debt-GDP ratio goes down and debt becomes more sustainable.

But unbelievably, the Troika, this group of IMF, the ECB—the European Central Bank, and the European Commission decided the way to attack the problem of excessive debt was to get GDP down. And of course if you get GDP down, then the debt-GDP ratio goes up.

So, they have went from a situation where initially they had a debt-GDP ratio of 110, 120, to 170. But what the senator didn't point out, in the middle of that, they had a massive debt write-off. So, even with the debt write-off, things got worse.

And it wasn't because Greece didn't do what it was told. It was because they did do what was told. They did follow the macroeconomic mandates. And those macroeconomic mandates, predictably and predicted, led to a decline in GDP and a debt-unsustainability. It led to the recession and now we have to be clear. The description of what is going on in Greece is the Great Depression. And Germany and the other members of the Troika don't use that word, but it is a Great Depression.

And the statistics, you know, if you're a young person—and there are so many young people here; if the unemployment rate is 60 percent and it's been that way for five years, and is likely to remain that way as long as it can—I can see, there's no hope.

What's happening, the unemployment rate would be even worse, except for so many of the young people have been leaving the country. But what does that do to the future of the country? The debt stays there, but people move. So, the debt-unsustainability gets even worse.

And this has a lot to do with the structure of the euro. I can't go into all the—again, all the details, but—but fundamental things, there's a deep long structure in the Eurozone, but the policies that have been implemented have made things worse. And they caused—they caused this deep depression.

Now, back in the 19th century, when individuals got excessively into debt, there was a simple solution. You put them into prison. And we had debtor prisons. Now you ask a simple question. Do people in prison generate the income to repay the debt?

Well the answer—it's a rhetorical question, in case you didn't know. Now , you don't make money when you're in prison, but that is what the Troika has been doing, effectively, to Greece.

Or to give another example, in the 19th century, and even into the 20th century, when countries couldn't repay the debt, what happened? We sent in armies. When Venezuela couldn't pay its debt at the beginning of the—of—of the 20th century, we sent in—Europe sent in warships.

And interestingly, Argentina came to the defense of Venezuela and said whenever you lend to a sovereign, sovereign immunity pertains. You cannot destroy sovereign immunity. It's sacrosanct.

And they came and the guy—interesting; the name of the—of the foreign minister of Argentina at the time was Drago . It's a different Draghi than the European Central Bank. But he came to the defense of Venezuela.

The—today, what we've been doing in Greece is not sending in armed troops. What we'll be doing is just as forceful. It is the Troika saying that if you don't do what we say, life is over.

Now let me talk a little bit about the other conditions. The most invidious conditions are the macro conditions. And under the new program, things are going to get worse. The depression is going to get deeper.

The primary surplus is going to go from 1-1/2 to 3-1/2 percent. And even with debt forgiveness, that primary surplus is going to lead to an economic downturn.

But beyond that are all these conditions that are referred to structural reforms. Most of these—many of these are unimportant. They represent a reflection of special interest in the rest of Europe.

They're arguing over the shelf life of milk, the size of the loaves of bread, things that are not important. And they're not doing anything about the important things, which is the growth of inequality , the role of the big banks in dominating, the role of the big media.

So, they're ignoring the big issue. But in fact, in some ways, they're making the big issues worse and that's what I find very disturbing.

So we all know inequality increases if workers don't have anything—anybody to defend them. But they want to weaken unions. It's bad enough that wages are down 25, 30, 35 percent, but they said that's not enough. We have to weaken unions.

And then, finally, there are a whole set of issues—well, actually, not finally, there are a whole set of issues that are counterproductive, like small businesses have to pay their taxes ahead of time, a year ahead of time.

That's a death knell for businesses—small businesses. And 90 percent of the businesses—or more than 90 percent in—in—in—in - in Greece are small businesses. So you're trying to recover the economy and then you have structural reforms that are designed to make that economy crash.

The final thing is the privatizations. And their privatizations are not designed to rejuvenate the economy. One article that was published over the weekend in the London Review of Books really tells it all. There's one company—they talk about Greek tax evaders.

The largest—probably one of the largest tax evaders is a German company that runs the Greek airport. It was almost a billion dollars. And the prices, after privatization of the airport, are among the highest in the world.

So, here you have privatization, to a German company, and things have gotten worse. Now how is that going to solve the problem by having more privatizations of that kind? So, the bottom line is there needs to be a program for Greece, but it's not the one the Troika is offering.

I think it's really important or the United States to come to the assistance, and I hope Congress will take some actions, because unfortunately, what we're seeing right now is, under the Troika program, Greece is going to deeper into depression. [applause]

KIRKEGAARD: Well, thank you very much. I'm [inaudible] for thanking Stephanie and Senator Sanders for inviting me. And I should also say that I was invited, I believe, to provide a diversity of views. And based on what we've heard so far, I don't think that will be too difficult.

But I'm actually happy to say that the first diversity view that I will say is that I'm actually quite optimistic with regards to the Greek economy, because I believe that if Prime Minister Tsipras continues on his new path, the one he found in the last couple weeks, I believe it is entirely possible that the Greek economy will grow 3 percent next year.

Why is that? It's because I believe that, if he sticks with his commitments, he will achieve significant debt relief in the first quarter of 2016. He will also get—or the Greek economy will enjoy a sizable monetary stimulus by being eligible for quantitative easing purchases by the ECB, et cetera.

And the will also—also maybe end up with a short-term fiscal target of, I believe, a primary deficit of perhaps 1 percent over the next 12 months, all of which, in my opinion, should be—provided there is political stability, should be more than enough to see economy go back to significant growth.

So, I can tell that I also think that it's important to provide a diversity of view, as I said, to perhaps attack what I consider to be some of the myths about the Greek crisis that seems to be quite widespread.

And the first such myth I would argue that exists is the idea that austerity was imposed on Greece. I think the reality is quite different, because the reality is that, quite unlike in the United States or the UK, for instance, where austerity has been a choice, austerity in Greece came as the result of two things.

One, that it faced an objective loss of market access. There were simply no buyers for its debts in the private markets.

And secondly, that in—in 2009, it had a primary deficit of more than 10 percent of GDP. And if you have a primary deficit of more than 10 percent of GDP and have lost market access, austerity's going to come your way no matter what happens.

And that's the situation that Greece were in. So when we talk about who imposed austerity on this, it wasn't the German government. It was the private—it was the private market participants said they didn't want to buy the debt.

Vermont Teachers' Union could have done it. The Endowment of Columbia or Texas University could have done it. No one did it. That's why it was imposed.

Now it is certainly the case that the initial Troika program, in my opinion, was wrongly structured. It had too much emphasis on fiscal consolidation. It didn't take into consideration that Greece was going to be the first domino in what turned out to be regional crisis and that in many ways the pro-growth element of the program had other issues related to them. So there was too much austerity built relatively in the program, but it wasn't a case of why the Greek budget deficit had to be cut. It was simply because, in my opinion, there was no other alternative.

The second myth that you often hear is that the original bailout that was structured in 2010 was done predominantly to save the German and French banks that had lent a lot of money, allegedly, to Greece.

Now, it is true that the German—the combined German and French banking exposure to Greece in the last—the first quarter of 2010 was about 50 billion euros. And there's no doubt that, by the way the structure of the deal, they saved quite a lot of money, these banks, from doing so.

But the way—the reason that the bailout was designed in this way was not to save just—to save these few banks in France and Germany. It was to save the entire Euro area financial system, and indeed, make sure that there wasn't a sustained on other peripheral countries in Europe at the time, basically to save Europe and the global economy from another Lehman moment, which was entirely the right thing to do.

And—and I would also say that we should keep in mind that, yes, German and French bank had 50 billion in euro exposure. Let's hypothesize that they hadn't been salvaged, so they had lost all that money.

That would have accounted for about 6 to 7 percent of the—of the base capital in the French and German banking system, 6 to 7 percent. You know, significant loss, but not probably catastrophic either.

Now we should also keep in mind that they weren't the only banks that were saved by this bailout in 2010, because the reality is that the exposure of the Greek banking system to Greek sovereign debt in the first quarter of 2010 was 40 billion euros as well, which surprisingly accounted for about 100 percent of Greek banking sector capital at the time.

So if you had not had the bailout, you would have wiped out the entire capital of the Greek banking system and you would probably have had no other choice than to bail in depositors at the time to recapitalize. That would have been the true counterfactual to the way the bailout was done.

The third significant myth I would argue about Greece is that the demand by the Troika for, in the long run—and as I said, I believe for the next 12 months, would probably have a primary deficit for Greece for about 1 percent, which I think is appropriate.

But the idea that it is completely unrealistic and unfeasible to have long-term fiscal primary surplus targets of 3 percent or above, I actually think is not true, because if you look at the fiscal history of advanced economy from 1950 onwards, and you look at the countries—the number of times in which countries actually managed to run these kids of surpluses, you will see that about a quarter of all years in such a time or such a data set, you will have primary surpluses of more than 3 percent.

So this is entirely feasible and in fact not, therefore, a competing theme to ask for in the case of Greece, because you do want primary deficits when you have a situation—excuse me; where there are, you know, high debts and a big differential between interest and roof , which will certainly be the case in Greece.

The fourth myth I would argue that exists is that the ECB is some sort of an enforcer of depression era politics in Greece. I actually don't think that's the case at all.

The reality is that the ECB is the central bank for all of Europe, and as being that—sorry; for all of the Euro area, they are also the Greece's, by far, biggest creditor, which had lent Greece, in various forms, either through bond purchase of liquidity provision, about 130 billion euros, which is 70 or so percent of GDP.

But what it has also done, of course, it that, yes, it has been instrumental in shutting down the Greek banking system, but that is an entirely predictable outcome when you have a sovereign government that decides to draw question marks about the solvency of itself, and therefore, whether or not the collateral that it—that its banking system relies on is also maybe solvent or not.

You cannot ask any independent or any central bank in the world at all to actually lend against collateral that isn't sound . The ECB—ECB didn't do it and one that should not be surprised that it didn't do it.

And therefore, many of the policies that the—the current government in—in Greece engaged in earlier in this year would have had—should have had entirely predictable outcomes, which in fact, seems to have been the case, now that we know there was in fact a plan to potentially try to introduce another currency in Greece in the instance that the ECB did as it did.

But as I said, that is a natural follow-through of what I would call normal, prudent central bank policies.

The last final myth I would argue is that basically I would contend that you cannot get to a situation where Grexit makes any sense for a country like Greece.

And I think here, it's quite important to recognize that there is in fact no valid historical comparisons to which to draw such inferences, because the reality, we sometimes here that, well, we have Argentina. Or we have, you know, the collapse of the Soviet Union, new currencies, the breakup of Czechoslovakia, or the former Yugoslavia.

But the reality is that none of—none of those cases are the situation that Greece is in, because it is not the case in Greece that it's sort of breaking a currency board , like what was the case in Argentina. It's not the case in Greece that is the dissolution of a currency union, like in Czechoslovakia, et cetera. The case that Greece would be in would basically be to reverse full currency substitution or reverse at a full dollarization, and try to introduce a new currency while the existing bank or currency, the euro in this case, was still in place.

And I don't believe there is a single example in financial history that has actually been instrumented. [inaudible] either in the euro area or the dollar. Even the—even the—even in Ecuador, having tried to roll back full dollarization, or Panama or, you know, El Salvador or other countries.

And there's actually, in my opinion, therefore, no historical record to suggest that he would be successful in Greece, but I certainly look forward to, at some point, reading the reports that were prepared for the former finance minister.

But I think it's also, we should be clear, that Greece is a country that exports relatively little. It has all —a fairly undiversified economy, so it would be a valid . It imports a great many things of importance, food, energy, medical supplies, et cetera, which suggests that the idea, in my opinion, that you could achieve a real exchange rate depreciation in Greece is doubtful.

And in fact, it would certainly only be able to do so if you had very high levels of nominal inflation, with fairly catastrophic social effects onto that. And—and therefore, I—I basically don't think you could do it And if you could do it in Greece, I think I will end it with a final question, which is why not do it also with Puerto Rico? If it makes to do it in Greece, why doesn't make any sense to do it in Puerto Rico? Yet, Puerto Rico dropped out of the dollar and introduced its new currency.

I would [inaudible] consistent advice would advocate [inaudible].

Thank you. [applause]

GALBRAITH: Thanks very much and it's a pleasure to be here.

My engagement with the Greek question goes back now quite a few years and it has a lot to do with a personal-professional association that I had with the former finance minister and my good friend, Yanis Varoufakis.

But I want to begin here, especially to thank in very, most profound terms, Senator Sanders, who, when this crisis became, you know, acute in the wake of the election in January, he stepped up and he expressed his solidarity, expressed to [inaudible] a statesman-like manner, and a manner which I know the ambassador has already said

I can tell you that my friends in Greece took note and were deeply, deeply appreciative.

And Greece is a small and a fairly distant country. And apart from a shared heritage and a cultural legacy, it's reasonable to ask why the United States should be engaged with it. And we've already heard a number of answers.

There is a strategic argument, which the ambassador made. Greece is what you might call a near frontline state in an important neighborhood, on the margins of an unstable, but nevertheless, promising region.

It has a role to play in that part of the world and it is an important, longstanding NATO ally of the United States, so that's—that's the first reason.

The second argument is that Senator Sanders made in his introduction that Joe also made, which is an argument of principal, not economic policy, which is that when economic policy proves to be—have disastrous effects, it should change.

It should—the fact should be recognized, consequences should be evaluated in an open [inaudible], and changes in policy should be introduced.

It's worth noting—and I'm not going to dispute for a minute what you just said about the inevitability of austerity in the Greek context, given the financial crises in 2010, and given the mismanagement of Greek state finances in the years before the crisis.

But when the policies were imposed at that time, there was a projecting that they would produce a decline in Greek GDP of 5 percent, with a recovery coming within a year or two, so that things would be back to normal by 2012.

That was on the basis of the policies that were implemented. And the actual decline in GDP was 25 percent over a few years, with no recovery to speak of. The notion that things were recovering in 2014, was an artifact of the fact that prices were falling more rapidly than nominal GDP.

So you were in a debt deflation, which was making the burden of private debts go up and the burden never [inaudible] go up.

So, the stress of that situation five years—it's not 25 percent the GDP annually. It's five years of lost GDP on every social institution, every piece of infrastructure that makes the economy function, the healthcare system, the education system, the physical infrastructure, the maintenance of buildings and roads and so forth, has been enormous.

The stress has been enormous and the loss of top-level personal to immigration, as well as promising young people to emigration is also a long-term consequence of this.

So, one has to ask, when you go back and re-impose the same policies, which I don't believe anybody in authority in the Eurozone thinks is appropriate for Greece. I think Wolfgang Schaeuble—in fact I know that Wolfgang Schaeuble knows that they're not appropriate for Greece. It's not the reason he's imposing them. You have to ask what is the likelihood of success. I'll estimate [inaudible] for every extra point on the primary surface, you lose a point of GDP so that we're likely to see continued declines, if those targets are, in fact, met.

If we're lucky and you're right, the targets won't be met. And that's the basis for some possible improvement in conditions in the next year or so. But we have to remember that the policy that's been imposed will impose automatic cuts in spending if the revenue targets are not met.

And that is going to possibly create a continuing, deepening spiral, which will affect the stability of loans in the banking system.

There's still, I think, a larger reason why we should be concerned with the Greek question and that has to do with the future of Europe. Europe is a very large place. And it's a partner on which we rely to function as a major economic and political success and poll of stability in the world.

And as an economic entity, Europe is in trouble, thanks to an unstable architecture, destabilized, in part by the great success of industry in one part of Europe, in the north of Europe and especially in German, by deep internal imbalances, surpluses in one area, offset by large deficits everywhere else, and by a lack of stabilizing mechanisms of the kind that we have enjoyed in this country since the New Deal and the Great Society.

And that imbalance and that architecture works to impoverish and alienate a large part of the European population, and economic failure is reinforced or enforced by democratic failure, one of the features of the deal or the bid cap that was imposed on Greece earlier this month is a requirement, for example, that the parliament may not even submit for—the government may not even submit for public comment, legislation that has not previously been approved by the creditors.

That is a draft , if you like , of popular sovereignty, and in my view, a violation of a core principle of the Treaties of the European Union, which is that the union is based on representative democracy.

The fracture—let me just make one more point about the saving of the banks in 2010. I don't disagree that it was necessary, but I think it was done here under false premises. Why was the Greek debt extended?

You made the point, I think accurately, that you do not make a new loan on bad collateral, but that sin was already committed in 2010, when the IMF, against the advice of staff and of certain executive directors, extended a quota—a loan to Greece, 32 times its quota, the largest in history, for the purposes that you just mentioned.

It would have been much better at that time to recognize that the Greek debt should be written off and to bailout the banks directly as a problem within the north European context.

So, anyway, the fracture that has happened could have come in other countries, but it happened in Greece for two reasons. For one reason is that the conditions were especially severe. Greece adjusted more and suffered more than any other European crisis country by a factor of about three.

And the second was a kind of happenstance, which is that a new political party arose in Greece, that had an especially clear voice and platform that presented a concrete alternative that made an argument to the Greek people, which they found persuasive and which they rewarded with a victory in the elections in January.

And so the Greek government—the new Greek government was in a position to try something, which a—was a five-month effort, which I was very proud to have a very small supporting role in, to attempt to negotiate change in Europe; attempt to win a change in European policy.

That would occur within the euro. And it has been, the ambassador I think will confirm, the consistent policy of this government to stay within the euro and the Eurozone and to attempt to do so under viable conditions.

We didn't succeed. That's not their fault. The fact was they—they were negotiating against a—a phalanx of partners, so-called partners, institutions and governments that for many different reasons were not prepared to concede anything at all; not on the debt, not on the conditions, not on the terms.

They also did not succeed in defending the core of political principles and economic common sense of the government's program with respect to pensions, for example, particularly a very low-income people; with respect to the basic rights, internationally recognized labor rights; with respect to the sensible management of state assets.

All of these things were overridden under the basic threat you have to the end of the month and if they didn't concede, the banks would be closed and would not reopen and the depositors would lose their money, which is the working capital of the Greek business sector, and that would bring on an economic collapse.

So, I think as I said, I think the effort was a—was an honorable one. The fact that it did not succeed does not mean that the problems will now go away.

They make get better for a short while, but the underlying issues will remain and they will arise again; if not in Greece, then elsewhere as other countries experience similar and a negative dynamic.

We talked a little bit about the role of the United States. The United States I think has a reputation in Europe and especially in Greece for pragmatism, right?

And I think that the government of the United States played a constructive role in recent months. The president made a number of important telephone calls to Chancellor Merkel, in particular, in order to try and bring the two partners together in a bargaining sense and to achieve some element of compromise on both sides.

That was a useful thing to do up to a point. But it seems to me now, given what we've experienced, that we the United States need a stronger policy in two respects.

First, as I think Senator Sanders said to begin with, we need to help. We need to provide moral and economic support for the country, our ally which is in trouble in these conditions.

But we also should be more open than we have been to Democratic progressive forces in Europe that are pressing for change. We should recognize their legitimacy, not wait for them to get into government before we start talking to them, but be part of a dialogue about the kind of changes that are required, even though that may make existing governments in other countries who are also our allies uncomfortable. It should be part of our principle that we are open to having this discussion because it's important for the future of Europe.

These forces likely represent the future in several countries. You can see that in the Greek referendum bill when it was the youth who overwhelmingly voted no, right? That's where the youth are going to be. We need to be engaged with that if we want to have—keep our friends and build our alliances with Europe as a whole.

And finally, we should I think begin to distinguish between the strategic importance of the European Union, which is 28 countries, and which includes some of our most important allies, Britain, Poland and some smaller countries; Croatia, the Czech Republic are very strong American allies who are not members of the Eurozone and who are not inclined to become members of the Eurozone. They certainly are doing their best to avoid meeting the criteria if they can do so.

And the Eurozone, on the other hand, which is 19 countries and is an economic device, an economic device to be supported when it can be made to work but not if it can't. Some —I would say .

If other countries gravitate toward an alternative structure, we should not confuse the two things. It does not mean that they are moving out of Europe; it does not mean that they are moving out of the West, that they are wavering in their commitments to democracy.

It may mean, quite the contrary, that they're simply recognizing that the existing arrangements were not built on sound economic principles. And when that happens, it is the proper and pragmatic thing to change them and we should at least be neutral; we should be neutral and helpful in trying to find workable solutions.

One of the lessons of the last five months is that there is an enormous challenge in front of us all to do that. Because at present, Europe is well short of what it takes to provide a workable solution to the economic problems that it has built for itself over the last 15 years. So once again, thank you very much. Thank you, Senator, for organizing this extremely important event.

And I have to say it was even worthwhile, although I did it with considerable pain, to sacrifice a few days on my farm in Vermont to come down...[laughter]

And be with you guys. [applause]

KELTON: Thank you all. Let me pose a question, initially to Jamie. Jamie, Yanis Varoufakis, the former Greek finance minister, said that it was impossible to discuss the economic rationale for austerity with his European counterparts.

When he tried, he said he was, quote, "met with blank stares" and that it was as if he hadn't even spoken. Why was it so hard for Yanis to inject an element of reason into the conversation, given the colossal failures of the austerity policies?

GALBRAITH: Oh, that's—that's straightforward; he was dealing with finance ministers. I mean...[laughter]

Yanis Varoufakis comes from a world of, let's say, reasoned argument. He's really very good at it.

You can read his blog; there are millions of words going back five years, six years, seven years that describe exactly and in very acute terms—this is why I was drawn to him to begin with. I think he's one of the most significant forces in this debate that in—in—in the world at the moment.

And of course, the—his colleagues or counterparties in the Eurogroup, which is the quasi-formal entity that coordinates the activity of the finance ministers of the Eurozone, are political figures or—well, they're basically political figures who have I think in many cases, they are—at least a few cases, highly intelligent. That's certainly true of—of—of the German finance minister, Wolfgang Schaeuble.

But they are not interested in argument of the kind that Yanis brought to bear and they're not interested particularly in the economic conditions in Greece. They're interested in the political fortunes of their own governments, which they tend to be the more conservative elements; that's what finance ministers get to be. And—and they're interested in being on the right side of the power centers in Europe, which are the government of Germany and then of course the European Central Bank.

So, it's not surprising that he was one against 18. But then if you—if you—if you made it a criteria that of—of merit that you have to be with the majority on these matters then, you know, everybody from Andrei Sakharov to Jesus Christ would be in trouble. [laughter]

STIGLITZ: [off-mike] Can—can I just add—can I just add one—good. I'd just add one little thing.

It is a little bit more surprising because the IMF Olivier Blanchard in their world economic outlook did put out that austerity has these adverse effects.

So, even though you had what had been a—a—a conservative institution, they woke up and, you know, not perfectly, and I won't say throughout their organizations, even they didn't buy their own arguments. But at the top level, there—there was a recognition austerity has these adverse effects.

And there—so, to me, it was a little bit surprising that they ignored evidence to the extent that they did.

KELTON: [off-mike] This—this actually witnesses —we have to continue to turn these on and off, don't we?

This brings me to the next question I was actually going to ask you, Professor Stiglitz. Paul Samuelson, another Nobel Prize winning economist...

STIGLITZ: From Gary, Indiana, the same town I came from.

KELTON: How about that? [laughter]

Samuelson said of FDR, "Roosevelt did not know a lot about economics but he knew which whiskey wasn't working and he was ready to shop around in a way Herbert Hoover, by temperament, could not have done."

So, my question is you've just returned from Greece and I know you've been all over Europe and you're working in perhaps an advisory role.

Have you found an FDR in the Eurogroup, at the IMF? You mentioned Olivier Blanchard. Are there others now who you think are beginning to see that the whiskey isn't working and they're willing to shop around for alternative policies?

STIGLITZ: Well, I think when you're talking about a number of the officials, particularly finance ministers, unfortunately I sense a lot of intimidation.

People are afraid to get on the other side of Germany because they may need help. And so many of the countries are in—in that—I—I don't want to say precarious, but are in that difficult position.

Officially, Holland and—and—the—the—the president of France and most of the economists in France are very supportive of the Greek government, very critical of the austerity. They've been very loud.

I know they were calling up the president all the time and telling him, you know, you can't allow this to continue and that's where his heart was. But in the end, in that negotiating room, I think, you know, who knows what was going on in his mind. But it—he wasn't able to be strong enough to counter the pressure from—from Germany.

KELTON: Are you wanting to jump in?

GALBRAITH: Yeah, I—I think it's fair to say that quite a number of countries had their own reasons for being resistant to any change in European policy.

To go east to Finland or the Baltics, you have strong ideological commitment to the neoliberal and austerity line. They're just deeply imbedded in it.

The Finns were nervous because their commitment to the euro has cost them very dearly in economic terms compared to the Swedes or the Norwegians.

They—if you go in the other direction to Spain and Portugal and also Ireland, these are governments, conservative governments which were extremely hostile because any success granted to the Greek government would cost them politically against Podemos, against Livre, against Sinn Fein. And that gave them exceptionally reason of their own to be unforthcoming.

But then, basically the other reality is that the negotiations didn't occur in the Eurogroup; they occurred with the institutions. The Eurogroup was there to put a stamp on it, basically. The institutions themselves, not entirely internally unified.

As we know, the IMF says we can't do this without debt restructuring; that's a sensible position. The IMF on the other hand was much stricter on the policy terms than the European Commission would've been.

So, it was a complex case where you had one country negotiating against multiple and not entirely unified partners who had—whose operating instruction was don't give any ground. And that was what—it was easiest for them.

And as Joe has said, and I think in a very important piece in the New York Times, they also threw in everything. You know, they weren't discriminating about whether a policy actually had evidence behind it. They said, well, they have a—IMF has an obsession about who owns Greek pharmacies; it has absolutely nothing to do with whether the Greek population is getting its over-the-counter drugs at low prices, which is in fact the case, right, and has to do with who owns the—who gets the rents from owning a pharmacy, which is not a competitiveness issue.

KELTON: I want to let...

STIGLITZ: Let me just add one thing on the pharmacy because it's got so much attention. One of the interesting things that Papandreou had done was put all the prescriptions online and that actually brought prices down and saved a couple billion dollars.

No attention is given to those really deep reforms that actually made a difference. And it's all about...

GALBRAITH: Who owns them and when ...

STIGLITZ: Who owns them, which—which is not going to determine the way the economy functions.

KELTON: I want to give Jacob a chance because Jacob is not convinced that the whiskey is not working. And so, I want to ask him to describe for us what failure would look like.

KIRKEGAARD: Well, failure, in my opinion, indicates that Greece will certainly look like a, shall we say, attempt to introduce a new currency, for instance. I think that would be an abject failure because, in my opinion, the consequences of that would be catastrophic, even beyond where we are now.

And I would be the first to admit that the program as it was originally designed has been largely a failure for a whole host of reasons. So, I'm not by any means suggesting that, you know, what we have in—in Greece is a success or even an—an acceptable outcome; it's not.

And I certainly also agree that it was very clear for all the reasons that Jamie and Joe has just described why it was 18 to one. But I guess I would say that anyone who understands how Europe works and recognizes that these 18 other finance ministers in the room come with their own democratic mandates and therefore, they're not going to listen to arguments of the type that former finance minister Varoufakis was bringing.

The outcome of what has happened in Greece in—in the last five to six months were not actually very surprising. And therefore, the mystery to me is why this—this—in the knowledge thereof, or what should, in my opinion, have been the knowledge that this would be the end point, namely that you would end up with the banks closed indefinitely, why it was nonetheless attempted. Because at the end of the day, I don't think any democratic government anywhere has actually survived the closure of its banking system.

But what would failure look like? No, I think failure would look—would have looked like a Greece that were tumbling out of the euro area which also, in my opinion, would mean that it would be shut out of—of the E.U. budget, meaning de facto end up without being a member of the E.U. because this would've had catastrophic consequences for the country.

In some ways, I would argue that what has happened in the last five years is a, you know, in many ways, near-lethal fall from the 50th to the 40th floor, but there's still quite a long way you can drop if you do some bad things.

KELTON: Let me ask Joe and Jamie both to share their reaction to the idea that a Grexit is—it would be absolutely catastrophic.

STIGLITZ: Yeah, I—I'm more of the view that—that actually the current path is catastrophic because there's depression without end.

You know, I think with a lot of work, you could make euro work. But it's going to take a lot of work.

And given the politics and the reasoning that we've just described where you have finance ministers who don't understand economics or if they understand economics, feel their hands are tied by domestic politics and so they can't do anything, that's a Europe that can't work. You have an economic regime where economic principles are thrown to the side.

So, the question is is it possible to organize a Grexit that will be not destabilizing? And I am absolutely convinced that it is, particularly in the 21st century.

Because in the 21st century, we—money is different from it used to be. We have, you know, we have—we have electronic financial institutions, you know, electronic money.

So, the—the way the corralito worked in Argentina was actually relatively smooth after the first couple of weeks of, you know, maybe a month, a couple months of adjustment. Once that happened, actually the discount on the money that was inside the banking system and the money floating on turned out to be essentially zero.

So, you know, there's a fundamental flaw. Want to —people say, well, Greece doesn't get support . Well, that's really a fundamental misunderstanding about the nature of modern prey .

They sell tourist services. I just came back from buying a very large amount of tourist services and that generates foreign exchange revenue.

If you raise the VAT, of course you make it less competitive. You—if you force the banks—for small businesses, which most of them are, to pay their VAT, to pay their income tax a year ahead of time, of course that's going to destroy the economy.

But what I'm saying is—what one can do is a change in the de facto exchange rate. And you can stay in the euro and—and have this money inside the—the banking system as well as money outside the banking system. You could actually make this work.

Before the last episode of the crisis actually, Greece had a current account surplus. So, the—it will take a little while to restore that current account surplus, but I feel very convinced that you can make a very smooth transition out. And it may turn out to be the only way that you restore prosperity to Greece, given the obstinacy of—of its so-called partners.

KELTON: Jamie, can you talk a little bit about plan B, since we're hearing I think a little bit about electronic transitions to a new currency? What—is there any—what can you tell us?

GALBRAITH: I can tell you quite a bit.

KELTON: I know you can. [laughter]

What will you tell us?

GALBRAITH: You know, it was...[laughter]

It was always the policy of the Greek government and of the finance ministry to negotiation within the euro. And everybody who was attempting to be helpful, as I was to my friend, was conscious of that and extremely careful not to do anything or say anything that might be construed as having another objective.

It was not, in fact, an alternative policy scheme. It was a precautionary operation.

The danger that the Greek government faced, which was known to—to its high officials from the beginning, from January when the president of the Eurogroup visited Athens and told Yanis Varoufakis flatly that it was either the memorandum of understanding as it existed or that the Europeans would crash the banking system.

That was not a threat that was taken idly and we were very conscious that the European Central Bank, having first waived the—withdrawn the waiver that permitted Greek banks to refinance themselves directly on February 4th, held in its hands the tool, namely emergency liquidity assistance, that could bring the Greek banking system to its knees, which is did eventually but capping it at the time of the referendum. But it could've also reopened it, which would have had very serious consequences.

So, it was only prudent to task a small group very discreetly to think about what kind of challenges would have to be faced if that situation arose. That's what we were doing.

What were the methods? The methods were any method any academic is going to use in these circumstances. We read the open literature.

We looked at the experience of U.S. municipalities issuing IOU scrip in the 1930s. We looked at the experience of the state of California in 2002. We looked at the implementation of capital controls in Cyprus. We looked at the experience in Latin America with the—in particular, the Argentine crisis in 2002. We looked at a wide range of things. We looked at the European treaties.

We came to the view that an exit would not necessarily mean a—this was basically legal advice, that the—not necessarily mean exit from the European Union. That would be a decision that would be taken by the European Union and probably if they chose to keep Greece in, they could. They could simply reestablish the kind of derogation that Britain and Sweden already enjoy.

Would it have been—let me kind of say it to Jacob, that—that nothing you said about the—the perils of this was any news to us. Our job was to outline what the problems were and we outlined quite a lot of them.

This was not something that was going to be taken lightly and it was something which—for which there would have to be a level of preparation which was impossible because it would've not been—you couldn't do it without essentially creating a self-fulfilling prophesy.

So, it was at most a preliminary effort for a circumstance that we very much wished to avoid that in fact was avoided.

What are the basic economics? I think they're basically two things.

You have transition costs. And in the transition costs, you have to work very carefully to ensure that this society functions and that people who are vulnerable are not hurt any—or hurt as little as possible.

And you have vulnerable people; you have people who rely on ATMs to get their pensions. What happens if you don't have cash to put in the ATMs? That's a question you have to think about, what your alternatives are.

Once you're through the transition, I think the evidence is you would get, as Joe said, a fairly rapid rebound because you would have the advantage of the depreciation which would be substantial in some sectors like tourism. And you would have control over your own policy and you wouldn't be subject to the memorandum anymore so you could pursue what you thought was most appropriate for Greece, the government could on its own lights .

But ideally, it would've been better and would still be better to achieve a compromise that's workable within the Eurozone and that has everybody's support. So, that's I think the, you know, the government has taken its choices.

I think the government chose according to its own—its best lights under the very difficult conditions that it faced. And I have nothing but respect for every side inside that government which strikes me as a—a—a group of people who are worthy of respect, which is why I'm very proud to be associated with them. KELTON: Thanks, Jamie.

Let me ask a—a question that is related to something that you often hear in the halls, these halls here. And that question is is—is Greece a canary in the coalmine for the United States?

You often hear people make the argument that here in the U.S., we need to begin making deep cuts to programs like social security and Medicare and other forms of social safety net programs to avoid ending up like Greece.

And so, my question is what do you say to people who make those arguments? Can the U.S. end up in a Greek-style debt crisis? I'm going to start at the end and go right down.

KIRKEGAARD: No. I mean, I think the probability of that happening is essentially zero. And I think the narrative going in that direction is entirely misguided.

We can talk for a very long time about why Greece ended up in the situation that it did, but I think on any conceivable parameter, the United States is a very, very different entity. So, I think it's a completely misguided characterization.


STIGLITZ: Yeah, I—I agree. Let me just make a couple—explanation why it's so different. First, we borrow in dollars and we print dollars. We control the exchange rate; we control the—the—the creation of dollars, the Federal Reserve.

The—one of the major mistakes, things that was not grasped when they created the euro is that they created a problem that's analogous to what we saw in all the emerging markets in developing countries. Countries were borrowing in dollars and they didn't control the currency they were borrowing.

What happened is Greece and all these several countries were borrowing in euros but the euros were controlled from Frankfurt. And that's an inherent problem once you go into that.

And that's why a lot of people say you ought to create a euro bond or the ECB bought to borrow and then relend. So, that was a fundamental flaw in the structure of—of—of the euro.

The second point I would make is—is it's already, you know, it's clear; the U.S. government can borrow at a negative real interest rate. You know I said one of the important points that Jacob pointed out was—was that there was a sudden stop in the ability to borrow. We're nowhere near that.

When the United States can borrow at a negative real interest rate with all the debt we have, it's very clear we're nowhere near that kind of situation.

KELTON: You agree?

GALBRAITH: Yeah, I think the—this—this is a point of absolute non-controversiality. [laughter]

KELTON: Funny, we keep hearing it around here. [laughter]

GALBRAITH: It is—it is possible to do a lot of—of, let's say, self-inflicted damage. And there are always quite a few people who are really happy to do that, funny .

KELTON: Talk to us, if you would, about why it is so difficult to get the—the—the so-called oligarchs in Greece. Why is it so difficult to get them to pay their taxes?

KIRKEGAARD: Well, I—I guess the—probably the most notorious example of this is—is in the shipping industry, which is constitutionally exempt from any kind of taxation, more or less.

And part of the reason for that is—is—is in my opinion, it goes back to the military dictatorship in the '60s, et cetera. But if you think about it in economic terms, part of the reason of it is—is clearly that the Greek shipping owners have always been able to tell the Greek government, look, if you subject us to any kind of taxation, we're all going to move to Liberia.

So, it's a very mobile factor, if you like. And that makes it quite difficult, not impossible, I would argue; I mean, there's actually, if you look at the major shipping nations of the world, they actually all—most of them are advanced economies. They have managed to do.

But—but why is it so difficult? I think the other reason is that many of them have great media interests and therefore they're politically difficult to attack, which is not sort of a Silvio Berlusconi type situation like we know from Italy. It can be—it can be very difficult to address it there.

But I would also say that in my opinion, this was one of the great hopes I actually had for the new government when it came in because it was not part of the two old established parties that have essentially sort of divvied up the Greek economy over the last 30 to 40 years. It actually had an opportunity to attack many of these but it didn't and I think this was obviously very unfortunate.

GALBRAITH: Can I just add a...


STIGLITZ: A couple—a couple points then maybe . You know, the first—the first point is absolutely right; very hard to tax the shipping industry for exact —there's no industry that's more mobile. So, they could've done it a little bit more, but I think the limits were very, very severe. But there is some problem with transfer pricing that they could've—they—they could've addressed. These are where the shipping industries were actually getting profits in other industries and they could've attacked those other industries and stopped the transfer pricing. So, the exemption actually had broader—broader context.

The—the second point is the—again, a point that—that was raised, the previous government, the Samaras government, was an oligarchy government. So, how could you expect them to support the taxation of the oligarchs? So, to me, that was not a surprise, that the—you know, in terms of previous.

The third—the third point is that, you know, Papandreou, who was the one before that, actually did try to stop some of the links between media and the banks and the—the—and actually made some success. But then some of that was reversed.

And one of my disappointments was that the IMF or the troika never said anything as these efforts to tame the—the—the oligarchs and to tame the collective lending as that was—was brought back in, they—they were totally silent. And they should've been very loud, particularly with this media, because that is one of the mechanisms by which the oligarchy gets preserved.

The—the final point I want to emphasize is one of the reasons that tax collection more generally, not the oligarchs, but tax collection in general is difficult is—is it's a country of small businesses. And before the United States went on to credit cards and electronic, it was very hard to tax small businesses.

So, it—it is a real challenge. And not that it can't be solved, but we—we ought to recognize that—that in a cash economy, very difficult.

Final point that it is—should've been taxing more property, large property, but there's no property register. And one of the things that the IMF should have been working with them to create that kind of register.

GALBRAITH: OK, that—three—three quick points. First of all, the government is moving against tax evaders and against the oligarchs. This is a legal process; it doesn't happen all at once.

But there are steps being taken and it is the case that this government is not in the pocket of the oligarchs. And it is in its political and economic interest to take steps which it is taking.

A second point has to do with the enforcement problem in Europe when you're dealing with people who've taken their money outside the country and have it squirreled away in Switzerland or some other tax haven, perhaps Luxembourg.

The basic fact of the matter is that you can get cooperation from the tax authorities in such places if you are the United States of America. And if you are the Hellenic Republic, it's not so easy. There's a question of the willingness—political willingness of these governments to cooperate with an external tax authority. And of course the Internal Revenue Service has, let's say, influence that smaller just don't have; that's a problem.

STIGLITZ: Can I just...

GALBRAITH: A third—let me—let me...


GALBRAITH: Get to the third point—third point. I'll yield back.

The third point is that as a matter of policy, in—at the end of June, the Greek government brought to Brussels, having yielded on the question of austerity per say, they sought to achieve the goals, the—or to—the targets with something that they called redistributive austerity, which would have—have basically worked by raising some income tax rates and raising rates on—on relatively large business profits.

And the partners, the creditors said no, you can't do that. They blocked it on the grounds that it was anti-growth.

So, you have an ideological predisposition that a tax on corporate profits is anti-growth whereas a cut in low income pensions is pro-growth and that—or a rise in value-added taxes on the tourist industry is pro-growth.

There is no evidence for this proposition. It's purely a question of ideology and compliance with the previous memorandum and perhaps also a political element of conservative forces seeking to basically thwart all progressive alternative policies.

And that was another—another problem. That was what—perhaps what—the reason why Prime Minister Tsipras felt impelled at that point to—to call for the referendum, which is basically saying you can't do anything that we don't tell you exactly what and how to do it. The result of the—of the process was that, in effect, the cost has been shifted to low income pensioners.

And I just want to recount one thing I saw in the paper shortly after that happened, was that the assistant secretary for the—in the ministry that was responsible for pensions resigned and his statement said, look, I just can't sign off on a pension of 87 euro a month to a handicapped person; 87 euro a month. That I think speaks to the values of the people who are in the government; it also speaks to the realities of what's being imposed on the ground in Greece.

STIGLITZ: I—the—just a minor point on the second point that—that Jamie made, which is one of the demands, one of the points in the—in the—in the negotiations is that the Greek government wanted to have a withholding tax on cross-border capital flows. And—which was to say that when money was going out of the country, you ought to tax it because once it's out of there, you'll never get it.

And they said—demanded that they—they eliminate the withholding tax on cross-border flow. So, their view was it's OK for foreigners to—to—to escape taxation, but not Greeks.

KELTON: Let me ask if the audience has just one question. We started a couple of minutes late and I—I did say that we would try to take a question but just—just one.

QUESTION: I have a question. It's not just sort of about Greece, but about the Eurozone. A lot of people say that countries like Ireland, Spain, they're doing incredibly well. But obviously in Spain, the unemployment rate is 25 percent; in Ireland it's 15 percent.

Now, given what's going in the European situation, right now, things are going up in Ireland and Spain. But as soon as they go back down again, let's say you have a penalized recession in Europe, what happens to those countries in terms of their euro access, in terms of their debt to GDP, and also in terms of—of their debt talk ?

KIRKEGAARD: Well, I mean, I can take a stab at that. I mean, it's very clear that a number of these European countries have come out of this crisis and, you know, like the United States, with much higher levels of public debt. And quite likely in the case of a number of them also, lower levels of potential growth, which means that they have a long term sustainability problem.

Now, how much of that is relate to euro membership or not, I don't think there's any doubt that in—in the case of Ireland, you wouldn't have had the housing bubble that you did if they hadn't been a member of the euro, and that's true in the case of Spain, as well.

So, but—but going forward, are the—is—is it in my opinion a—a detriment to these countries that they are in the euro or not? I—I don't—certainly don't believe it is, not least because the transition costs that Jamie talked about are going to be just as high for these countries as they would have been for Greece.

So, in terms of the European architecture, and my opinion is that the basic element of the—what this crisis has shown is that the original master design of the euro, the sort of standalone monetary union, has not worked.

And what you have seen since the beginning of the crisis is that you have created this bailout fund, the European stability mechanism, and you have begun the integration of the banking system and so-called banking union, which are significant steps forward.

But it's certainly not where the euro area needs to be 10, 15, 20 years from now where I believe you should move towards much more integrated political institutions and therefore with such political institutions, also have the ability to issue euro bonds and a European finance ministry, et cetera.

QUESTION: So, you're saying you think that it'll get worse for these countries? You know to 15 and 25 percent unemployment would actually build higher?

KIRKEGAARD: Oh, no, not at all. I mean, look, I mean, I think—I think Ireland will grow 5 percent this year. I think Spain will achieve 3 to 3-and-a-half. We can then debate how, you know, whether that's going to continue.

But no, I absolutely do not believe that it's going to get any worse in these countries; on the contrary, I think they will do quite well.

GALBRAITH: I think that—well, let's—just to take Ireland as an example, one commentator whose views I follow on this argues that the Irish economy has benefited from being on the cusp of a property boom bubble in the U.K.

Should that come to an end, the—the cheery picture that—relatively cheery picture that is presently being drawn in Ireland will also come to an end. And so, then we may well see some of the same questions that have—were raised in the Greek setting coming up in the Irish setting. And there's some of the political alternatives that have actually happened in Greece may also begin to happen in Ireland, as well.

My own view is that given its current policy commitments, ideological commitments and policy commitments, and given the failure to reform and structure, the Eurozone is probably not going to endure indefinitely.

The Greek effort was, I think, a really strong test of whether you could get reasonable variations. One way of putting it is that—what Greece needed was—the—if Eurozone is a hospital, Greece needed to be in the intensive care unit where it would get oxygen, where it would get I.V. fluids, where it would get antibiotics, monitoring and so forth.

And that I.C. unit doesn't exist in the Eurozone. Everybody gets the same treatment and when they don't recovery, they get lectured for not—for backsliding.

This is not a successful model and it won't be tolerated indefinitely by the political forces in Europe.


GALBRAITH: Now, let's just—one more—one more question on the—one more—just quickly on the question of transition costs, it strikes me that we—we were very conscious of the transition costs. And the Greek government which, I mean, didn't really get their information from us was far—far—even more conscious of the dangers and the risks of exiting.

But one of the consequences of the discussion that's now already occurred is that those transition costs will be examined very carefully. And when it comes up the next time, it's quite possible that they will be much lower because the conditions under which this crisis may occur may be ones under which there is some agreement to do things cooperatively and to reduce the transition costs. And if that happens, then the whole I think framework for the future of the currency becomes much more flexible.

And I guess my view is that's a good thing. And you probably ought to move to something that has a fixed but adjustable framework at some point. And it would be great to do that in a way which was constructive, cooperative and as easy as possible rather than one which is result of a—of a—of a really challenging confrontation.

And I'm very—you know, again, I don't judge—I don't doubt the judgment of the Greek government in terms of the choices it made; was a very, very tough situation that they faced.

STIGLITZ: Yeah, just let me add, I agree basically with what Jamie said and a lot with what Jacob said.

Let me just make two points. One is you use the word very success is—that Ireland and—and Spain. And I don't view a—a country where the youth unemployment is 50 percent is—is a marked success; it's a peculiar view.

And it's sort of like, you know, again, to use another analogy, somebody jumps off of a 50-story building and they hit the ground and they're spattered and—and everybody says, oh, he stopped falling. Well, yes, he did stop falling but he's not exactly healthy.

And that's actually relevant in the following sense. Greece, Spain, all these other countries, people have been leaving; the young people have been leaving. So, their potential growth is going to be much lower.

So, the damage, the technical term that economists use is hysteresis; what has happened in the last five years has done a great deal of damage and won't be repaired.

And then you look at, you know, just going back to normal economics of—of 5 percent, 7 percent unemployment, we're talking with Spain, if things continue at the current rate, maybe 10 years, maybe 15 years, you know, Keynes said—you know, people said, well, in the long run and Keynes respond is, yes, in the long run, we're all dead. And we're talking about a generation of suffering.

So, to me, I don't view that—that as a success unless Europe moves more rapidly and addresses some of the fundamental issues of real conversions like industrial policies reforming a central bank who's in the past focused just on inflation and not on unemployment, inequality, financial stability or all the other things that it ought to be.

Unless they really go to the structure of the Eurozone, I—I think the likelihood of this union of currency's not likely to survive. And more—more important, I think the E.U. project is really important and I think to save the E.U., you have to let the euro—the—the euro go. It's just a little piece of paper and I don't understand why people have such emotions about these little pieces of paper. [laughter]

KELTON: OK, on that note, I'm going to thank all of you. I—I would like to thank Senator Sanders, I know he's not with us, but for convening this group.

Thank you to the Roosevelt Institute for sponsoring the event. Thank you to all of the panelists; really, really terrific. Thank you so much for coming out, and thank all of you, as well. [applause]

Bernie Sanders, Remarks with Joseph Stiglitz, James Galbraith, and Stephanie Kelton in a Discussion on the Greek Debt Crisis Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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