Dignity is relative.


Greece Is Cutting Line For Debt Relief

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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As the European Union and Greece wrangle over the future of the latter's bailout, it's useful to put the Greek demands for debt relief in perspective. The far-left government of Alexis Tsipras says it must cut the country's debt to restore "dignity" to impoverished Greeks. But there are poorer nations in the EU whose debt burdens are heavier than Greece's: according to Tsipras's logic, those countries' dignity is under far greater threat than Greece's. Rather than give Greece special treatment, the EU should be encouraging it to follow the responsible example set by its poorer neighbors.

There are plenty of countries in Europe with debt problems. In 2014, Greece paid 4.3 percent of its gross domestic product to service its debt. That’s a smaller percentage than paid by Portugal and Italy (on this chart of interest payments on government debt as a share of GDP, Greece is denoted by the acronym EL, Portugal is PT and Italy is IT):

Social Europe

In 2012 -- the latest year for which such data are available from Eurostat -- Greece had a per capita disposable income (taking into account purchasing power parity) of 15,172 euros ($17,209 at the current exchange rate). That puts it in the same economic weight class as Portugal, which had an average income of 15,824 euros. But Portugal managed to exit its own bailout in May 2014 without demanding debt relief the way Greece is doing now.

Neither have far poorer countries that are newer arrivals in the EU. According to World Bank data, Hungary's ratio of debt payments to exports reached 97.4 percent and Romania's 39.7 percent in 2013 -- far in excess of Greece's ratio of 26 percent. They also have significantly lower average disposable income. Meanwhile, if Greece defaults on its obligations to Europe, it force losses on several countries poorer than itself, including Latvia, Slovakia and Estonia, the poorest of the nations that took part in the Greek bailout. (It guaranteed 390 million euros worth of the loans to the European Financial Stability Facility that funded Greece.)

Greece's position in the World Bank's ease of doing business rankings is lower than that of any of the nations mentioned above, which reflects a low level of institutional development and a lack of effort on Greek governments' part to support private enterprise. In Transparency International's Corruption Perceptions Index for 2014, Greece also lags behind Portugal, Hungary, Estonia, Latvia and Slovakia, sharing the 69th spot in the world with Romania. Businesses see it as one of the most corrupt places in Europe.

Given all that, it is difficult to understand why Greece should even be a candidate for debt relief. The other countries, especially the ones with higher debt servicing burdens than Greece's, would probably appreciate such help, too. It would certainly make their citizens' lives more dignified -- perhaps it would even help them achieve the living standards enjoyed by today's Greeks.

One might claim that, since Greeks were far wealthier before the crisis than people living in eastern European countries, they're suffering more than their neighbors -- facing poverty after years of prosperity, you might think, is harder than seeing incremental improvements, as eastern Europeans do. That claim is hard to back up, though. According to the United Nations World Happiness Report for 2013, Greece was the 70th happiest country in the world, while Estonia was 72nd, Portugal 85th, Romania 90th and Hungary 110th. If anything, you could make the case that people in those countries are more in need of freebies -- and the additional happiness that comes with increased financial prosperity and better government services -- than Greece.

There is only one thing that has made helping Greece a higher priority for the EU than providing more resources to its newer members: the Tsipras government's brash demands, backed up by a self-proclaimed mandate after the leftist Syriza party received slightly less than 50 percent vote. Anyone can play that game, and if Tsipras succeeds, they might follow Greece's example. 

The EU has strong political reasons to compromise with Greece. Jacob Funk Kirkegaard of the Peterson Institute for International Economics has pointed out that such a compromise might bring Tsipras into the political mainstream and "defang radical left-wing movements elsewhere." According to Kirkegaard, a deal "would also bury the long-term populist threat in Europe that many have long warned against, illustrating that political systems can absorb new political pressures within the economic and political constraint of countries’ fiscal situations and the common currency."

To achieve that, however, any deal with Greece must broadly be on the EU's terms. Otherwise, it will only embolden populists in other European nations, and before too long, other countries that don't need any help will be jumping ahead of the quieter, poorer and more diligent east Europeans.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net