Last week, European creditors gave Greece an injection of cash. But not much of the $6.8 billion Athens paid out today actually went into the Greek economy.
“The money that Greece just got was immediately spent on paying back the IMF and paying back the European Central Bank,” says Mitu Gulati, a law professor at Duke University. “I mean Greece got a tiny portion of it. They’re lending Greece money to pay themselves back, and that’s how we got into this awful situation in the first place.”
Gulati helped with the restructuring of Greek debt back in 2012, and co-authored a new plan to help Greece out of this crisis. His strategy would have the private sector step back in to replace the foreign governments and organizations currently holding Greek debt.
The current situation, with money coming in to Greece only to go back out to creditors, is unsustainable, says Rob Howse, a professor of international law at New York University.
He says the fact that European governments have been so resistant to restructuring or writing off some of Greece’s debts represents a “kind of a symptom or a reflection of the unreality of this whole process with the eurozone.”
Howse has an alternative. He was part of a United Nations task force attempting to make the bankruptcy of a country look more like that of a municipality or a company, with rules on how to make a country’s bailout a bit more organized.
But he says one of the big differences between companies that run out of cash and countries that do the same is whom they owe.
“Some of the main creditors, when you are dealing with a country … are, for example, pensioners, people dependent on Social Security and people dependent on the health care system.
It’s easier to blow off Wall Street investors than to deny granny her retirement.
The Greek government and its European creditors have to figure out how to move on from just funneling money from one creditor to another. If they don’t, says Duke University’s Gulati, “unfortunately, I think that will result in Grexit, Greece exiting [the eurozone.]”
In the meantime… you can always check with us to see if Greece is solvent yet.
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