Economists Call for Cancellation of Greek Debt to Avoid 'Inescapable' Austerity

Protesters gesture in front of the Greek parliament during a rally against government austerity measures in Athens in June 29, 2010 John Kolesidis/REUTERS

Economists have warned that without debt cancellation, Greece will remain mired in austerity "with no possibility of escape" ahead of landmark elections on Sunday that will decide the fate of the country's membership of the euro and wider financial stability of Europe.

An international group of 35 economists wrote an open letter, published in the Guardian, urging the troika - consisting the EU, European Central Bank and IMF - to cancel debt and renegotiate repayments with the Greek government, which should in turn abandon its programme of austerity that is "crushing economic activity".

The Greek economy shrank by 24% between 2007-2013, with unemployment currently at around 25% and youth unemployment at 50%.

One of the signatories to the letter, professor Malcolm Sawyer at Leeds University told Newsweek: "As far as one can see, without renegotiation Greece would continue to go on the high levels of unemployment for the foreseeable future with no possibility of escape."

"Stimulus has to come from somewhere," he said. "Without debt renegotiation, Greece will continue to be mired in austerity."

Sawyer added that debt renegotiation in Greece could spark similar considerations in other indebted countries like Portugal, Ireland and Spain.

The letter also called on the Greek government to stimulate demand and launch an investigation into endemic corruption and inefficient or ineffective use of public funds.

The radical left-wing Syriza party is currently on course to become the biggest party after Sunday's election, campaigning on a platform of renegotiation of the terms of debt repayments and austerity measures imposed by the troika. If such a renegotiation is impossible, the party has suggested Greece could default on its debt, possibly leading to the country leaving the euro, throwing the eurozone into a new crisis.

Dr Dimitrios Syrrakos, an expert on Greece's financial crisis, described a Greek exit from the eurozone as "catastrophic", while Barry Eichengreen, an economic historian at the University of California has warned that it would amount to "Lehman Brothers squared", causing a run on Greek banks and unleashing chaos in financial markets.

The party has softened its message in the run-up to the election, after current prime minister Antonis Samaras said that a Syriza victory would certainly lead to a Greek exit from the eurozone. Reports at the beginning of the year suggested that German chancellor Angela Merkel is ready to accept a Greek exit if voters choose Syriza in the elections.

Writing in the Financial Times, Syriza leader Alexis Tsipras set out a vision of Greece without austerity but still a part of Europe. "Austerity is not part of the European treaties; democracy and the principle of popular sovereignty are," he wrote.