Rx for Greece’s lat­est crisis

Lots of par­ties share the blame for another im­pend­ing crisis, but it’s the EU that has to act

Bloomberg Businessweek (North America) - - Contents -

The Greek econ­omy is still in des­per­ate trou­ble, and another crisis is loom­ing. If it hap­pens, this could set back hopes of re­cov­ery across much of Europe. The last emer­gency won’t soon be for­got­ten—yet noth­ing is be­ing done to avoid a re­run.

The lat­est quar­rel be­tween Greece’s gov­ern­ment and the In­ter­na­tional Mone­tary Fund, one of its of­fi­cial cred­i­tors, only un­der­lines the con­tin­u­ing dys­func­tion. The im­passe has to be bro­ken. For that to hap­pen, the Euro­pean Union must take the lead, re­think its po­si­tion, and grant Greece debt re­lief.

Greece’s gross do­mes­tic prod­uct is still fall­ing from year to year. About a quar­ter of the pop­u­la­tion is out of work. De­pos­i­tors pulled an ad­di­tional €500 mil­lion ($570 mil­lion) out of the coun­try’s banks in Fe­bru­ary, show­ing that last year’s res­cue plan has failed to re­store con­fi­dence.

On July 20, Greece is sched­uled to re­pay about €2.4 bil­lion of prin­ci­pal and in­ter­est on loans from the Euro­pean Cen­tral Bank and the Euro­pean In­vest­ment Bank. The na­tion’s to­tal debt-fi­nanc­ing needs in June and July ex­ceed €10 bil­lion— money it doesn’t have, un­less more bailout funds are re­leased by then.

As these pres­sures build, the IMF and the EU have been try­ing to agree on a joint po­si­tion. The IMF thinks Greece needs debt re­lief; the EU is op­posed. A tran­script pub­lished by Wik­ileaks shows de­spair­ing IMF of­fi­cials won­der­ing whether it might take another crisis to force Europe to act. At the moment, that seems all too likely.

Greece ac­cuses the IMF of act­ing in bad faith and says it’s ad­vo­cat­ing another crisis—a plainly false in­ter­pre­ta­tion that tes­ti­fies to the gov­ern­ment’s own bad faith. It’s true, though, that the IMF shouldn’t have been in­volved in the first place. The EU has all the re­sources it needs to deal with this prob­lem. Part of the cost it will have to bear is suf­fi­cient debt re­lief to make Greece’s fis­cal po­si­tion sus­tain­able and to let a real eco­nomic re­cov­ery be­gin.

By con­tin­u­ing to deny this, the EU does in­deed risk pro­vok­ing another crisis. Add to this sit­u­a­tion the pos­si­bil­ity that the U.K. might vote to leave the union this sum­mer, not to men­tion the con­tin­u­ing emer­gency over mi­grants. Of all these prob­lems, Greek debt is the eas­i­est to solve. Yet Europe lets it per­sist.

Greece, to be sure, has its work cut out, even if granted debt re­lief. It must con­tinue re­form­ing its pub­lic fi­nances. It should stop drag­ging its feet over sell­ing state as­sets and al­low­ing its banks to mend their bal­ance sheets by sell­ing non­per­form­ing loans, even if the buy­ers are so- called vulture funds. The cred­i­tors are en­ti­tled to in­sist on fur­ther ef­fort—still, with­out new debt re­lief, the EU is de­mand­ing the im­pos­si­ble.

There’s plenty of blame to go around—but right now it falls mainly to the EU to stop the next crisis be­fore it hap­pens.

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