Former Icelandic Minister on Greece

Greece will only be saved by its creditors facing facts and agreeing to a 30% debt haircut, according to former Icelandic Foreign Minister, Össur Skarphéðinsson.

In a piece posted on his Facebook page, Skarphéðinsson described Greek debt as “unsustainable”. He proposes writing off 30% of Greece’s debt and ensuring that pay-back and interest for the rest is linked to economic growth.

“Without such measures, Greece will suffer economic disaster and chaos,” writes Iceland’s former Foreign Minister, adding that responsibility for the situation lies not only with Greece but also with the European Union (EU) and the International Monetary Fund (IMF).

“EU must shoulder some of the blame”

“Greece ‘cheated’ its way into the euro”, claims Skarphéðinsson. This was done, he continues, by fudging the figures on the country’s public debt and budget deficit in order to meet the admission criteria. The EU knowingly turned a blind eye and must therefore shoulder some of the blame – and the debt.

Skarphéðinsson, who served as Minister for Foreign Affairs 2009-2013 as Iceland battled to emerge from its own economic crisis, also criticises the dithering response of the EU, IMF and the European Central Bank when Greece’s problems first emerged in 2009.

“Greece is, however, the main cause of their own problems,” he stresses. “Particularly the ruling government parties who ran up huge debt in the 1980s when credit was widely available and interest rates low.”

“Loans were taken out by irresponsible politicians eager to secure their position by keeping election promises to fill up pension funds and keep taxes low. It is their fault, not the Greek people’s.”

Greek administration “corrupt and incompetent”

Skarphéðinsson describes Greek administration as “corrupt and incompetent” and alludes to the country’s “baffling” tax system, where exemptions and evasion are rife. He also discusses the shortcomings and abuses of the country’s pension system.

“So what lies ahead?” he wonders. “Either an agreement is reached in the next few days or Greece will be out of the euro.” He goes on to ponder the fate of a Greece with a hugely devalued new drachma and pariah status in international financial markets.

“75% [of Greeks] want to keep the euro,” Skarphéðinsson continues. “[Prime Minister Tsipras and his party Syriza] thought that there was more support [around the negotiating table] for their demands and more opposition to the German policy of austerity in European welfare systems […]. This was not the case.”

Lessons to be learnt from Iceland?

“That said, austerity is being more and more brought into question – by for instance the IMF – in light of Iceland’s experience. In Iceland, welfare was protected, equality increased and the economy recovered quickly as planned.”

“When the wailing and gnashing of teeth is over, Europe’s politicians will also realise that, if Greece is pushed out of the euro, they will lose more money that otherwise,” concludes Skarphéðinsson.

“Whatever happens, and whether or not Greece manages to remain in the euro, it is clear that tough times are ahead for them.”