European leaders congratulated themselves last week for reaching an agreement to provide more loans to Greece and eventually ease the terms of the country’s huge debt. But there is little to celebrate.
Greece is bankrupt in all but name. The country has a debt of more than 300 billion euros ($333 billion), or about 180 percent of its gross domestic product, a sum it cannot hope to repay in full.
Most of that money is owed to Germany, France, Italy and other countries in the eurozone. After an 11-hour meeting last week, the eurozone finance ministers said that they would lend another 7.5 billion euros to Greece next month to help it pay off debt and grant it some relief, possibly including lower interest rates and extended payment periods, but not until mid-2018.
The reality is that Greece can’t be squeezed any harder. But the finance ministers are seeking still more spending cuts and increased taxes. They want to see a budget surplus of 3.5 percent of G.D.P. before interest payments by 2018. A stable and fast-growing country might be able to hit that target, but it is preposterous to expect that from Greece. TheInternational Monetary Fund wants to see a more realistic surplus of 1.5 percent.
Delaying meaningful debt relief until 2018 will further harm the struggling Greek economy. The Greek unemployment rate was 24.4 percent in January, and Greece’s economy shrunk in the first three months of the year. The I.M.F., which has also lent Greece money, recently estimated that at its current trajectory, the country’s debt would eventually grow to 250 percent of G.D.P.
Germany, which has lent more money to Greece than any other country, and other European nations simply do not have any ideas, besides imposing ever more austerity, for resolving the crisis in Greece. The government of ChancellorAngela Merkel of Germany, for one, does not want to commit to debt restructuring before elections in 2017, since many Germans are opposed to any policy that bails out the Greek government. While it’s understandable that German lawmakers are reluctant to admit that the debt won’t be paid in full, delaying the discussion about debt relief will not make this problem go away.
The I.M.F., which has made a strong case for debt relief, would do well to press the eurozone ministers on the issue. After last week’s meeting, I.M.F. officials said that they would not seek approval from the fund’s board for additional loans to Greece until the European ministers quantified how much debt relief would be granted, even if the final agreement was not reached until 2018.
This crisis will never end if European leaders keep pushing policies that have repeatedly failed.
Greeks don’t want to give up their unsustainable pensions and high wages. Is ILLINOIS next?