The Sunday Magazine

Why debt and deficit are not dirty words - Tim Harford

These are turbulent economic times, both at home and abroad. Words like debt, default and austerity rumble ominously through the headlines. Tim Harford, aka The Undercover Economist, returns to The Sunday Edition to help us make sense of the turmoil in global economics, and to explain the pros and cons of debt and austerity, what political leaders tend to get wrong in economic policy, and who actually holds our national debt.
A woman waves a Greek flag during a speech by the leader of Syriza left-wing party Alexis Tsipras outside Athens University Headquarters, Sunday, Jan. 25, 2015. (Fotis Plegas G./Associated Press)

A year after Thomas Piketty's 700-page tome, Capital, became a best-seller, and three years after the inception of the Occupy Movement, the politics of left-wing economic discontent hit the European mainstream in a big way in January.

Greek voters were fed up with the harsh conditions imposed on them by the European Union's bankers in their heavily indebted country's 240-billion-euro economic bailout in 2010.

They rallied around a firebrand anti-austerity party called Syriza and elected its youthful leader, Alexis Tsipras, as prime minister.
A protester against Greece's austerity measures poses near tents set up at Syntagma Square in Athens in June, 2013. (Pascal Rossignol/Reuters )

Syriza vowed to relieve Greece of its formidable debt, which amounts to 175 percent of its gross domestic product.

That's five times greater than Canada's. They also want to disburden Greeks of the austerity measures that have crippled the economy and destroyed their quality of life.

The government has cut so much spending and so many jobs that it's running a surplus ... even while the economy has shrunk by 25 percent, youth unemployment is close to 60 percent and about a third of Greeks are living below the poverty line.

That's so the government can channel its revenue into debt repayment.

So Syriza embarked on an audacious mission to have Greece's debt restructured and austerity measures lifted to get the economy moving and people working again. 

Tsipras and his iconoclastic finance minister, Yanis Varoufakis, did a victory lap around Europe, proclaiming that other indebted countries like Spain and Portugal would join them in an uprising against the EU's dour austerity policies. 

They took their demands to the EU, the European Central Bank and the International Monetary Fund. And the de facto leader of the European economy, German chancellor Angela Merkel.

The EU, Germany and the IMF were having none of it, though. Syriza was forced to put its anti-austerity revolution on hold in order to remain part of the Eurozone. It was rewarded with a four-month extension of their bailout program, and permission for somewhat less astringent economic tonic. 

Syriza party leader Alexis Tsipras says austerity is leading Greece towards collapse. (Oli Scarff/Getty)
The Greek debt scenario makes responsible, sensible politicians in Western countries shudder. Short of the kind of the cataclysm that sent the global economy to the brink of collapse seven years ago, government debt and budget deficits are seen as necessary evils at best. But it's even more necessary to expunge them as soon as possible.

For another opinion on whether - and when - debt and deficits are really dirty words, Michael Enright talks to Tim Harford, an award-winning economist and broadcaster. He is a columnist with The Financial Times, and his latest best-selling book is The Undercover Economist Strikes Back.


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