The austerity imposed on Southern Europe after 2010 has led many famous economists to ban together and address the structural weaknesses of the monetary union. Some even have gone a step further by supporting European protest parties and leftist governments, demonstrating their opposition to the austerity policies.
Among them are Nobel Prize-winning economists Paul Krugman and Joseph Stiglitz; Jeffrey Sachs of Columbia University; James Galbraith of the University of Texas at Austin; and Thomas Piketty, professor at the Paris School of Economics.
In a joint letter, these acclaimed thinkers have asked the General Assembly of the United Nations today to back fundamental debt crisis principles concerning the restructuring of sovereign debts.The goal: to establish a legal framework for debt restructuring, allowing each state to solve its debt problems without risk of financial collapse and loss of sovereignty.
Encouraged by their colleague and friend Yanis Varoufakis—the former Greek finance minister—these economists have called for a relaxation of austerity, debt restructuring and investment-induced recovery. They are sharp critics of Germany's commitment to budgetary discipline.
Instead, they believe the euro zone should follow the teachings of John Maynard Keynes, the 20th-century British economist who demonstrated that during recessions, economic output is strongly influenced by aggregate demand and that public investment is paramount to exit crises.
Inspired by Keynes, some economists have openly supported radical leftist parties, like Syriza in Greece and Podemos in Spain.
Thomas Piketty, author of the best-selling book on wealth and inequality titled "Capital in the Twenty-First Century," joined an international expert committee to advise Spain's anti-austerity party Podemos on its economic program in preparation for its first major electoral showdown in December.
"Piketty will work with the left-wing party on developing policies to combat inequality and on measures to democratize the euro zone," Podemos said in a statement on Monday.
Last January, the French economist argued that "generally there are three possibilities: A new financial crisis, a cultural shock coming from the left, and finally a political shock coming from the right. European leaders now should have the intelligence to recognize that the second option is by far the best of all: The policy advocated by the Podemos in Spain and Syriza in Greece is deeply internationalist and European."
Many leaders, including former Greek Prime Minister Alexis Tsipras, have leveraged the insights of these leading economists. Tsipras, following Varoufakis' advice, tried to use them to promote his political agenda. Podemos in Spain are trying to do the same.
U.S. economist James Galbraith—who from February to July was an advisor to ex-Greek Finance Minister Varoufakis and a consultant to former Prime Minister Tsipras—was asked by CNBC whether he believes Syriza and Podemos can change the balance of forces within the euro area in relation to austerity.
"Syriza is unfortunately a defeated force at this time," he said. "Podemos' fate is uncertain because there are two factors to consider. One is that Spain is a larger country than Greece. The other is that Podemos has not yet won the elections, and under the Spanish system it is more difficult to form a parliamentary majority than it is under the Greek system."
Earlier this year, Krugman and Stiglitz met with Tsipras and discussed the humanitarian crisis caused by the many years of austerity in Greece. In his column for The New York Times, Krugman has repeatedly argued that austerity policies cannot really improve the debt position of a country in Greece's situation. "It's the austerians who are inventing new economic doctrines on the fly to justify their policies, which appear to imply not temporary sacrifice but permanent failure," he commented before July's referendum in Greece.
According to reports last Monday, John Geanakoplos—the James Tobin Professor of Economics at Yale University and managing director at Ellington Capital Management—was offered to head the team that will prepare the Greek government's debt-restructuring proposals.
Geanakoplos, an economist of Greek heritage, believes that restructuring the public and private debt may eventually lead to smaller losses for the lenders. "Once the central banks admit the possibility of default, they will realize that in some extreme scenarios, they could get more money back by partially forgiving some of the debt than by insisting on full repayment or by increasing the principal on the loans," he argued at a recent Bank of Greece conference on "The Crisis in the Euro Area" held in Athens.
The bottom line: Like it or not, economists agree that the debt overhang will ultimately hurt Germany and destabilize the euro zone if not addressed correctly. That is why they are trying to ignite a sea change in policy.
—By Nasos Koukakis, special to CNBC.com