U.S. stocks rallied Monday on news that a solution may finally be in the works to the financial crisis in Greece, but economists aren't ready to pop the corks quite yet.
Greek Prime Minister Alexis Tsipras, who came into office on an anti-austerity platform, offered a last ditch-compromise today to Greece's European creditors aimed at preventing his cash-strapped country from defaulting on its international debt and potentially being forced out of the eurozone. The creditors -- the European Commission, the European Central Bank (ECB) and the International Monetary (IMF) -- had been running out of patience with the country's insistence on restructuring its debt, but they received Tsipras' proposal positively.
In an interview with CBS MoneyWatch, Mark Kuperberg, a professor of economics at Swarthmore College, argued that what's behind the crisis isn't debt as much as the economic concept of "moral hazard" -- the fear that a lenient solution for Greece will create a precedent.
"What it is really about is this fearful word 'moral hazard,' which I have come to believe over time is one of the most destructive concepts economics has ever come up with," Kuperberg said. He added that Greece's economy is so small that European officials could do whatever they wanted without worrying about the consequences for the region as a whole.
But in an effort to avoid moral hazard, Kuperberg said Europeans are "putting the screws to Greece in a really inhuman way (and) not recognizing the pain that Greece has gone through already and the things they have done."
"Say Greece were let off the hook, no one knows what's the probability that any other country would see that as an incentive to behave as Greece did," he noted. "I would say the probability of that is really extremely low."
Read the full article at CBS News.
Professor of Economics Mark Kuperberg, who joined Swarthmore's faculty in 1977, teaches popular courses on macroeconomics. His areas of interest include macroeconomics, public finance, and law and economics.