Did postwar Germany “deserve” the Marshall Plan? No. Was the Marshall Plan and the 1953 debt agreement wise policies to give Germany a fresh start? Yes. Did Russia “deserve” debt relief in 1992? No. Would it have been wise to offer Russia such relief? Yes.
Does Greece “deserve” debt relief? No. The Greek economy has been badly managed for a long time. Would debt relief for Greece be a good idea? Yes.
My point is that believing that indebted sovereign governments should always service their debts is a good working principle nine-tenths of the time, but can be a disaster the tenth time around. We must not push societies to the breaking point, even when they have only themselves to blame for their indebtedness.
Greece borrowed too much; failed to crack down on cronyism and corruption; and failed to foster new, competitive industries. The result is that Greece cannot service its debts in full. The economy is broken. The export base is too narrow to allow the country to pursue export-led growth – as done successfully in Ireland and elsewhere. The banks are broken, so firms can’t get working capital to retool. Greece is in a death spiral of austerity, de-capitalization, brain drain, capital flight, and growing social unrest.
Vir: Jeffrey Sachs, Death by Debt