Everyone in Ireland, regardless of their political orientation or party-political affiliation, should be hoping Syriza wins the upcoming Greek election and forms the next government. Why? Because their proposals on public debt would be a major boost to Ireland and the Eurozone as a whole. The headline to Denis Staunton’s excellent article said it best:
‘Why Ireland should support Greek plan to write down euro-zone public debt’
Leave aside your ideological predispositions. Even Wolfgang Munchau of the Financial Times believes Syriza and Spain’s Podemos are the only parties talking sense about European debt.
Syriza is proposing a European Debt Conference – similar to the one held for Germany after World War II. And the broad proposals they will bring to the Conference are based on this this paper written by Dimitris P. Sotiropoulos, Yiannis Milios and Spyros Lapatsiora. In short:
- The European Central Bank (ECB) acquires a significant part of the outstanding sovereign debt of the Eurozone countries – reducing national debt levels to 50 percent of GDP.
- These bonds would be converted to zero coupon bonds with a 1 percent discount
- The countries will buy back the debt when the ratio of those bonds falls to 20 percent of GDP
The impact for Ireland would be dramatic. In one fell swoop our public debt would be more than halved – reduced from 108 percent of GDP to 50 percent. This would cut interest payments by approximately half, saving €3.7 billion. Imagine what we could do with that €3.7 billion every year – increase investment, improve public services, and boost social protection income (even cut taxes if that is your political perspective). Whatever, this money would constitute a major stimulus programme for Ireland.
It would have a similar effect throughout the Eurozone. All countries would benefit (with the exception of Estonia, Latvia and Luxembourg; their debt is already below 50 percent). Over €4 trillion of Eurozone debt would be removed. With the massive interest payment reductions, the Eurozone would receive a similar stimulus boost. This would be the best way to escape the looming deflationary crisis.
The authors also hold out the prospect of a further boost, by presenting a slightly different alternative scenario to the one above: interest payments would be suspended over the first five years and rolled up into the zero coupon bonds. Giving Ireland and the Eurozone a free pass on interest payments over the next five years would have an even more stimulatory and economically-galvanising effect.