[UPDATE: This provides more detail and context than I do. Read it instead of, or at least in addition to, my post.]
Thomas Piketty has decided that because Germany was the beneficiary of debt relief in 1953 that they should extend the same privilege to Greece today:
When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: What a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.
Before explaining why this is both normatively and positively misguided I would like to clear some brush by mentioning two things. First, everyone (including me!) agrees that Greece’s debt must be written down. In fact, a gradual disposal of Greece’s debt has been a part of bailout program since 2010 and more of it will be discharged in the future. Greece has not paid back a single cent on net. In the meantime the debt is being financed through rollovers whose interest is mostly being paid by the rest of Europe while Greece has received fiscal transfers equivalent to more than 100% of GDP. So it is not an accurate characterization of the situation to say that the Greek economy is being squeezed in order to pay back debt; it is being squeezed because its level of spending was not matched by its level of productivity. And in some ways it still is not, although it is now quite close.
Second, while it would be very nice to have an international bankruptcy mechanism that would allow us to discharge debt and reorganize national economies in an orderly fashion, governments are unlikely to cede sovereignty over this issue for understandable reasons. So ad hoc bargaining is what we’re stuck with for the foreseeable future.
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