Time for debt reduction in Greece

Kicking the can down the road with an 'extend and pretend' approach to high debt simply makes matters worse. And it seldom works in the long run

Once again, Greece is at an inflection point. With its cash balances severely stressed, it seems unlikely to be able to meet the cascading debt payments falling due over the next few months. So yet another round of contentious and protracted discussions with its creditors is underway - one that may well produce yet another short-term solution. Yet kicking the can down the road is hardly the negotiators' only option. Indeed, it is the wrong approach.

When facing severe payment problems, a country has five basic manoeuvres at its disposal. It can, first, draw down the monetary reserves and wealth it has built up during better times and, second, borrow externally to meet payments in the short term. Third, it can simultaneously or subsequently implement domestic austerity measures (such as higher taxes or spending cuts) that free up resources to make debt payments.

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