Kiel Institute President Snower Calls for Independent Debt Commission in Greece

Press Release February 26, 2010

Professor Dennis Snower, president of the Kiel Institute for the World Economy, has called for the creation of an independent debt commission in Greece that would give Greece’s highly indebted government a financial framework to decrease its debt. “Just as an independent central bank sees to it that inflation does not occur, such a commission would see to it that Greece does not incur massive amounts of new debt,” says Snower.

To be eligible to receive EU assistance, Greece should have to agree to create a debt commission consisting of around 10 to 15 experts, says Snower further. The commission could allow new debt to be incurred in “bad years,” thus making tax cuts and increases in government expenditure possible. In “good years,” however, the commission would have to prohibit new debt from being incurred and see to it that old debt is reduced. “An anticyclical fiscal policy would be effective if a commission were in place to ensure that the debt that is accumulated during bad years is paid back,” states Snower.

The general strike in Greece is making things very difficult for the Greek government. “If a debt commission is not put in place, the government could lack the strength to significantly reduce its huge debt because it fears the wrath of the voting public,” says Snower. Thus, in order to ensure that the debt is reduced, the final authority for fiscal decisions needs to be invested in a debt commission.

Creating debt commissions should also be considered in other highly indebted EU countries, such as Portugal, Spain, and Ireland, according to Snower. A German debt commission would also be better than the so-called debt brake clause that has been amended to the German constitution. The debt brake clause stipulates that the federal government, with few exceptions, may annually incur new debt amounting to a maximum of only 0.35 percent of GDP as of 2016. It completely prohibits the German state governments from incurring new debt as of 2020. “This prevents the implementation of an effective anticyclical fiscal policy and is too restrictive in the long term,” says Snower.

Contact:

Prof. Dennis J. Snower, Ph.D.
Phone +49 (0431) 8814-236