Socially conservative Germans, Stiglitz warns, are doubling down on the discredited notion that austerity policies help economies recover in times of crisis. In reality, the insistence on keeping wages down, stripping away bargaining power from workers, forcing small business owners to pay taxes a year in advance, and cutting pensions will only hamper demand and lead to a deepening spiral of debt. (Stiglitz emphasizes that hardly any of the money loaned to Greece has actually gone to help the Greeks themselves, but rather private-sector creditors – namely German and French banks).And he makes this important point about "moral hazard," a favorite scare slogan for advocates of neoliberal policies on sovereign debt:
Reflecting on a recent panel at Columbia University with [German] Finance Minister Wolfgang Schäuble followed by a dinner, Stiglitz said, “My heart goes out to Greece, even more so after meeting Schäuble.”
When an audience member asked whether forgiving Greek debt would lead to moral hazard — encouraging other countries to borrow beyond their means — Stiglitz responded that it was unimaginable that any country would want to go through what the Greeks are currently enduring. He noted that the lenders bear even more responsibility for the current mess than the borrowers. Goldman Sachs, for example, structured irresponsible deals that allowed the Greek government at the time of the Maastricht Treaty to hide its debt. Stiglitz concluded that if anything, moral hazard is a problem on the lender side, as there is little to discourage lending money to countries that are unlikely to be able to pay back. He also noted that the idea of the Greek government selling assets in the middle of a depression to pay back debt was a bad idea, because prices are so low that this amounts to little more than a fire sale.