Interview: Debt restructuring not enough, creative thinking needed to address Greek crisis: Nobel laureate

Five years into the Greek financial crisis, a third bailout and a much-awaited discussion on debt restructuring are on their way.

"It will not be enough by itself. Creative thinking is needed to effectively address Greece's problems," U.S. Nobel laureate on Economics Joseph Stiglitz told Xinhua in a recent interview.

The 2001 Nobel Prize-winning economist has been an ardent critic of the recipe implemented to resolve the Greek debt crisis so far, the harsh austerity drive imposed by the International Monetary Fund and "the lack of genuine solidarity by European partners, in particular Germany."

Speaking to Xinhua on the sidelines of the 16th Symi Symposium hosted by the Andreas Papandreou Foundation at the island of Corfu this week he appeared pessimistic for the future, "as long as Germany continues to insist on a policy that has proven itself a failure."

As Berlin now seems open to considering debt restructuring, Stiglitz, professor at Columbia University, warned that it may not be enough.

"Deep debt restructuring is necessary; it is almost impossible to see the way forward without it. But debt restructuring by itself is not enough. If you have debt restructuring but you continue to have excessive austerity you will still have depression," he explained.

"And it appears that that continues to be the German framework. We need a new formula. That is why I am a bit pessimistic, because Germany continues to insist on a policy that has proven itself a failure," he stated.

Which is the correct formula? The answer is not simple, but addressing the five-day event that ended on Thursday as a keynote speaker Stiglitz argued that what was needed was creative thinking when dealing with sovereign debt crises.

The professor pointed to Argentina's case and the use of GDP-linked bonds as an example.

"What is good about GDP-linked bonds is that they align the interests of the creditor and debtor. It is a win-win situation," he noted.

Stiglitz has been an advisor to Greek governments since the start of the crisis. Last Friday he held talks with Greek Prime Minister Alexis Tsipras and Finance Minister Euclid Tsakalotos and offered to assist Greece in any way possible.

Asked which was the top piece of advice he would give to Athens at the moment he said that the real challenge was to set the right priorities and find ways to "persuading both the population and the troika that Greece is serious about reforms, but that it is important to have the right reforms."

The professor underlined that a key problem was that some of the structural reforms suggested in the past and today to tackle the Greek crisis "may not be well designed and certainly there is not ownership." They are for the most part imposed.

"When I was chief economist at the World Bank one thing we emphasized was that for reforms to be successful there has to be an understanding of the reforms, why they are important. Some of the reforms that are being asked are wrong or poorly designed and not necessarily the most important for the recovery of Greece," he explained.

For Stiglitz, poor designing was a fundamental problem also in the case of the European common currency whose survival has been tested by the ongoing crisis.

"I think that the euro was a fundamentally misconceived project. It was driven by politics and not economics. Politics were not strong enough to make the project work. Can you redesign it? Yes you can, but it is not clear that Germany wants to," he said.

"And the question is whether you do it in a right timeframe. If you wait too long like to have a Banking Union the damage will be very deep," he added.

The U.S. Nobelist was optimistic regarding China's role in the global financial system (which he views as biased against the least developed countries.)

Asked whether China and the BRICS pack can help bridge inequalities in societies across the globe, Stiglitz said that "they are already bringing something new."

The professor explained that "the U.S. and Europe are so absorbed in their own problems" to provide sufficient development assistance that "it makes sense for Asia, in particular China, to take a more active role and provide the funds that will enable the poorest countries to develop and close the gap."

"It is really very important. That is why I welcome so strongly both the BRICS New Development Bank that just opened up and the Asian Infrastructure Investment Bank initiative. I think it is an important milestone in China's taking a new role in the 21st century economic architecture," he told Xinhua. Endit