Sunday, March 31, 2013

Beyond Debt: The Greek Crisis in Context

My book on the Greek economic crisis, Beyond Debt: The Greek Crisis in Context, is now available through Amazon (, e-book,,, 


How did Greece, with less than 3% of the population of the European Union, become the epicenter of Europe’s “existential crisis?” Why did Greece opt for an obligation-laden bailout rather default or leave the Eurozone, as many said it should? Could it have avoided the disappointments that followed, including needing a second bailout, holding repeat elections, and swearing in its fourth prime minister in a year? 

The conventional narrative answered these questions by viewing the Greek crisis as the result of a “flawed currency union.” Many economists, moreover, thought Greece was foolish to seek a bailout rather than renege on its debts or leave the Eurozone. And as the crisis deepened, economists again blamed the international community for pushing “austerity” onto Greece. 

Beyond Debt offers a different account of this crisis. It sees it, first and foremost, as a Greek crisis, best understood through the lens of Greek history, politics and economics. The crisis was triggered by global events, but it was not caused by them. As the book shows, Greece’s chosen path—a bailout—made infinitely more sense than either a default or the abandonment of the common currency that many economists called for. And while others see “austerity” as the problem for Greece’s woes after the bailout, Beyond Debt blames instead an indecisive government that could not see reform through to the end.


  1. Replies
    1. Yes, it is just not up yet. It should be available in a week or so. Will post an update when that happens.

  2. Will it be available in Greek?

  3. 1 of 2
    Good to see you back in the blogosphere, Niko! It sure would help to get your book via e-book!

    You know that I respect your opinions and I don't recall that I ever disagreed with your views. In your summary, you say that 'Greece’s chosen path—a bail-out—made infinitely more sense than either a default or the abandonment of the common currency that many economists called for'. I don't disagree with that, either, but I want to clarify how I would interprete this sentence.

    The question should never have been for the EU whether or not to bail-out Greece. There had to be a bail-out. Neither should Greece have pursued a strategy other than a bail-out.

    However, I don't recall that there was ever much discussion of what a bail-out is. It seemed to be taken for granted that a bail-out meant lending a country all the money it needed to service its debt. Well, I am not sure that - up to the EZ-crisis - there ever was a national bail-out which entailed nothing other than lending a country money so that it could service its debt.

    Actually, we had two bail-out's here, both intertwined but still two separate bail-out's: the bail-out of lending banks and the bail-out of Greece's budget needs. I still maintain that the primary reason why the Euro-crisis unfolded the way it did was/is that these two separate bail-out's were mingled and treated as one.

    Whether it’s a corporation or a country, a bail-out means (or should mean) that someone lends Fresh Money to cover the operating cash flow needs. In the case of a country, that’s the primary deficit. And those who provide the cash flow for operations (Fresh Money) make one condition precedent: that existing lenders stretch the maturities of principal and interest and that they are flexible on the level of interest and its structure.

  4. 2 of 2
    It took the EZ wise men and women quite some time to realize that the existing lenders carried some responsibility and that they should contribute. Actually, that is a must. The question is only how. They chose the PSI in Greece and the deposit cuts in Cyprus. Well, to make a haircut on sovereign debt after only a few years of crisis is about the worst precedent one can set. And to cut depositors isn’t a wonderful strategy to keep up confidence, either.

    Lee Buchheit, whom everyone accepts as the greatest legal authority on sovereign debt, suggested for Cyprus what I mean. Don’t cut lenders/depositors. Have them accept the refinancing of existing debt by giving them new bonds/CDs with a maturity structure and interest rate/structure which is ‘sustainable’. Don’t force losses on them. Let them take the choice to take losses (by selling the new paper in the market at a steep discount right away) or to take chances that the new paper will be paid at par at some point in the future.

    Everyone says that banks would not have agreed to this in the case of Greece & Co. Nonsense! Banks always agree to this because their only better choice would be a haircut, that is an immediate loss. How does one get banks to agree to this? Let me call it ‘gentle persuasion’ by Central Banks, other authorities and by politicians. If that doesn’t work, a ‘disguised threat’ of a Central Bank will always work because no larger bank can afford to make enemies with a Central Bank.

    Suppose Greece’s lenders could have been ‘persuaded’ to take new bonds in lieu of payment of maturing bonds. Those new bonds might have had maturities ranging from 20 years upwards. They might have stipulated interest capitalization for the first, say, 10 years. It would have been a ‘haircut in disguise’ but still better than any alternative available. And, above all, it could have been sold as a ‘voluntary decision’.

    Banks would want to negotiate with governments reforms/austerity as a condition for going along except that banks cannot negotiate directly with governments. That’s where the lenders of Fresh Money come in (EU, IMF & Co.). They make their Fresh Money contingent on the reforms/austerity which are necessary. And the banks make their preparedness to reschedule contingent on the country’s agreeing on reforms/austerity with the Fresh Money lenders.

    The misconception is, and I know you agree with me on that, that a solution like the above would have made it any easier for Greece. Greece did not have to commit to reforms/austerity because existing lenders required it. Even if those lenders had haircut ALL their loans, Greece would still have needed Fresh Money and no Fresh Money without reforms/austerity.

    What’s my point? Lee Buchheit often criticized that the EU followed a strategy that existing lenders had to be paid out in cash 100 cents on the Euro. That strategy is what made the bail-out numbers so huge and that’s where it becomes a political problem in the lending countries. There, the voters saw that 3-digit BEUR figures are ‘sent to Greece’, the politicians sold them on the tale that those were good loans and they were ‘help for a Euro-partner’, and that upset voters with good reason. If they had seen that Greece only gets the, say, 45-50 BEUR which it had as a primary deficit since the beginning of the crisis, the public perception would have been quite different. Tax payers would, in all likelihood, still have had to come up with additional 3-digit-BEUR figures but those monies would have served to bail-out banks and the tax payers would have received equity in exchange. And there would have been the political side benefit that voters would have applauded that ‘banks, their shareholders and managements were finally called to responsibility’.

  5. Hi Nikos

    any update on the E-book yet?

    1. Being converted--didn't realize the Kindle conversion would take that long! Will keep you posted when it's up.

    2. Finally!

  6. You might be able to do the conversion yourself, Nikos. There are free tools available which will convert a word-processing format to kindle format. (Just don't try and use a pdf document as the input - the results are terrible)

    But please don't misinterpret that as encouragement. One of the frustrations of e-books for the reader is just how badly many of them are formatted. One of them I bought even managed to fail to markup the table-of-contents (and that was from a commercial publisher, too)! Properly marked up cross references between the main text and footnotes? Barely any of them manage that.

    It might make a difference to your sales if you can insist on trying the document out, before it goes onto the amazon site for sale. If you don't have a kindle, the above tool does include a viewer that can show it to you on a pc.

    1. Thanks Richard--that was helpful. The kindle version is finally out:

  7. Hello Nikos,

    I read "Beyond Debt". It's a very easy and quick read; it took me about a day to read. It's the best analysis of the Greek crisis I've seen. You have gathered together a lot of data and history and put everything in perspective. Incorporating political analysis of the crisis and Greek history helps a lot to explain how things got to where they did in 2009. Your epilogue is appropriate in the call for Greeks to believe in Greece and envision a different type of Greece; this is certainly missing at the moment. Congratulations on an important piece of work.



    1. Hello George, Thank you so much for reading the book and for your kind words in response to it. I very much appreciate it. Nikos


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