Today’s New York Times has an editorial on Greece which mentions the major point of the whole debate (my highlighting):
Some of the creditors still seem to feel that a debt is a debt to be repaid in full, and that the Greeks “deserve” punishment for their history of profligate spending and habitual tax evasion. But shrinking an economy by a quarter and throwing more than half the young people out of work — policies Mr. Tsipras has likened to waterboarding — is not the way to enable a country to pay back its debts. Greece needs some breathing room, not only to give Mr. Tsipras a chance to turn the country around but also for the sake of the rest of Europe.
There it is! It is not the case that those arguing against austerity are against repaying the debt – they argue that debts cannot be repaid if less government spending (austerity) and more flexible labor markets with lower wages, longer hours, and less security and benefits (structural adjustment) leads to more unemployment. It should be very clear that – macroeconomically – saving is income not spend. Cutting income is then not a logical strategy to boost savings, quite the opposite!
It would be a very big step forward if in 2015 we can have a debate on growth in the euro zone, because without growth the logical level of government debt for euro zone governments is zero. The debate about Greece should be viewed as a fight between two paradigms on how to repay debt: austerity versus textbook macroeconomics from the IS/LM model. And that model says that in periods of weak aggregate demand you need to push the interest rate down or increase government spending. Austerity says that less government spending will create more incomes. How the gap between less government spending (which cause incomes to fall) and higher incomes is bridged still seems misty. The evidence says the gap will remain.
So, either you chose more government spending, more economic growth and more debt repayment or you chose austerity. That should have been the debate the whole time, instead of Greek taxpayers versus (Greek and non-Greek) bond holders. We had this debate in the economics profession, but somehow it did not get noticed in the press. Perhaps now would be the time.