Op-Ed, Private and public debt: How shall we pay for the pandemic?

By George Alogoskoufis*

With the Greek economy having been through a period of moderate recovery after 2016 and having shifted its focus toward growth reforms after the 2019 elections, in 2020 it was confronted with a major economic crisis due to the COVID-19 pandemic.

Beyond the public health repercussions, this crisis has led to a significant decline in short-term and middle-term economic prospects.

Greece went through a very deep recession in 2020 and even the most optimistic projections indicate that recovery will come considerably after 2021.

Both the recession and the fiscal cost of managing the crisis will lead to a renewed hike in public debt not only for Greece but the entire world.

In contrast to what occurred in 2010, the crisis finally mobilised the EU to create its Recovery and Resilience Fund, a temporary fiscal mechanism worth 672.5 billion euros.

That will address some of the repercussions of the crisis in the real economy and in the public debt of fiscally vulnerable member-states like Greece.

In 2010 the cost of adjustment was rolled over to member-states, especially those in the eurozone.

Yet the problem remains. How shall we pay for the pandemic? It is the same question, though with different dimensions, posed by Keynes in 1939 - "How shall we pay for the war?"

Certainly, an increase in public borrowing to prop up the economy is the appropriate short-term solution but it entails kicking the can down the road. Just as after wars, so too after major economic recessions there comes a time to pay off the debt or at least reduce it in relation to GDP through economic development and inflation.

Greece experienced austerity mainly between 2010-2018. The global recession of 2008-2009 led to a...