EXERT FROM Adam Posen is president of the Peterson Institute for...

EXERT FROM

Adam Posen is president of the Peterson Institute for International Economics and, like every international economist right now, he's glued to the drama in Greece. There is, he says, a simple solution to the crisis: the Northern European countries should write a check and end it.

EK: You often hear about how the Greek government is barely able to collect taxes. How big a contributor is that to this crisis?
AP: There is no question that the Greek system has done a terrible job of collecting taxes, and especially collecting taxes on the richest people. For instance, shipping is constitutionally protected from being taxed, and that’s where many of Greece’s great fortunes are. Taxation on real estate is also poorly collected. But in terms of Greece racking up all its debt, that isn’t the fundamental issue. The fundamental issue was the surge in capital from Northern Europe to Greece during the early and mid-2000s. Even if the Greeks hadn’t been able to collect much tax revenue they couldn’t have gotten into so much debt if people weren’t giving them all these loans.
E
K: What do you think the financial consequences of Greece leaving the eurozone would be?
AP: I think the short-term consequences are going to be much smaller than people fear, with the huge, horrible exception of the Greek people themselves. It will be awful for them. But pretty much all the Greek debt is now in government hands. The total amount of debt, which is about $200 billion euros, is real money, but it’s really just about 1-2 percent of total euro area GDP. And every bank and every investor has known this has been coming for months.