The election of Syriza in Greece has sent shock waves through the international establishment as a consequence of the new Government’s determined position to write off a significant proportion of the country’s debts and reschedule the remainder for payment according to the rate at which the economy grows. It is understandable that this challenge to the troika of the European Commission, European Central Bank and the International Monetary Fund has attracted most of the European media attention surrounding the election result.
However, just as radical, and potentially more important as a standard setter for other European countries, are Syriza’s policies to address the debt burden of Greek households. Speaking ahead of the election in September 2014 (*), the Syriza leader, Alex Tsipras, set out a clear commitment to undertake a major programme of debt restructuring for individuals (and businesses) unable to service their outstanding loans.
The debt restructuring promised by Syriza is based on two principles: firstly the ‘case by case’ partial write off of debt incurred by people living under the Greek poverty line; and secondly, that no debtor shall pay more than one third of their income in debt servicing costs. In this respect, the limit of one third of income is expected to cover all debts owed to banks and the state itself. This is more than just a new bankruptcy procedure in Greece. As Tsipras went onto explain:
“We are setting up a public intermediary organization for the handling of private debt, not as a ‘bad bank’, but both as manager of any payment overdue to the banks and as bank controller regarding the implementation of the agreed-upon settlements.”
It is clear that the restructuring of household debt in Greece is intended to be systematic. The new intermediary organisation will be empowered to enforce the one-third of income repayment rule. In addition, it will not be possible for creditors to sell on debts to third parties and there will be a new law prohibiting the repossession of people’s homes, where these are valued at less than 300,000 Euro.
We welcome Syriza’s approach to the problems faced by Greek households, having called for a similar programme of debt restructuring here in the UK from 2011 onwards. In a chapter, in the Smith Institute’s ‘A nation living on the never never: policy solutions to tackle Britain’s personal debt mountain’, published that year, I wrote:
“There are two main ways in which over-indebted households can be helped in the current crisis – either en masse through the implementation of a comprehensive package of support provided by lenders, involving the write-off of a proportion of outstanding household debt and the restructuring of the remainder; or individually through the use of insolvency and debt management systems. The first of these is preferable, as it would recognise the systemic failures that have created the current crisis, quickly restore consumer confidence, and provide debtor households with the additional liquidity required for them to start spending again. It would also ensure that they were not subsequently excluded from the credit system.”
This call for a major restructuring of household debt was made again in my recent book, ‘Britain’s personal debt crisis: how we got here and what to do about it’, which provided further details as to how this could be done, including through the purchase of outstanding debts at a fraction of their nominal value by a state owned bank.
Syriza are now putting this into practice. A similar programme in the UK is urgently needed.
* Tsipras’ speech in September 2014 was used to set out the Thessaloniki Programme, now available on the Syriza website at http://www.syriza.gr/article/id/59907/SYRIZA---THE-THESSALONIKI-PROGRAMME.html#.VMuBky62GcE