De­ci­sion time for Greece

Los Angeles Times - - OPINION -

Euro­pean Com­mis­sion Pres­i­dent Jean- Claude Juncker of­fered some sage ad­vice re­cently to the Greek elec­torate, which faces a cru­cial de­ci­sion on Sun­day about how to deal with its crush­ing debt: “You shouldn’t com­mit sui­cide be­cause you’re afraid of dy­ing.”

That cap­tures the rock- and- hard- place sit­u­a­tion con­fronting Greeks as their gov­ern­ment de­faults on a $ 1.7- bil­lion pay­ment owed to the In­ter­na­tional Mon­e­tary Fund. With banks tem­po­rar­ily lim­it­ing with­drawals and global mar­kets slip­ping, Greeks will go to the polls next week­end to choose be­tween en­dors­ing the higher taxes and pen­sion cuts their cred­i­tors have sought, or de­mand­ing a bet­ter deal that may never ma­te­ri­al­ize. The first op­tion threat­ens to drag down a Greek econ­omy that is al­ready suf­fer­ing from shrink­ing de­mand and an un­em­ploy­ment rate more than twice as high as the rest of Europe’s ( and four times as high as ours). But the sec­ond, fa­vored by the rul­ing left­ist Syriza party, could force Greece to aban­don the euro, which econ­o­mists say would cause even more pain in the near term by driv­ing the coun­try into a deeper re­ces­sion.

Euro­pean of­fi­cials have al­ready bailed out Greece twice, in 2010 and 2012, writ­ing off some debt and ex­tend­ing more loans while in­sist­ing that the coun­try shrink its public pay­rolls and raise its taxes. In ret­ro­spect, it’s hard to ar­gue that ei­ther of those in­ter­ven- tions struck the right bal­ance be­tween re­lief and re­form. As badly as the Greek gov­ern­ment needed to trim its spend­ing, weed out cor­rup­tion and crack down on tax evaders, the coun­try also needed to grow its econ­omy. It has not done so. And that task will only be com­pli­cated by the cred­i­tors’ de­mands for higher tax rates on a broad va­ri­ety of goods and ser­vices, along with re­duced sub­si­dies and pen­sion pay­ments. Mean­while, Greek vot­ers have be­come in­creas­ingly hos­tile to their lenders’ de­mands, toss­ing out two suc­ces­sive rul­ing coali­tions that sup­ported the aus­ter­ity ef­forts.

The stakes for the rest of the world aren’t as high as they were five years ago, when the pos­si­bil­ity of a Greek fail­ure threat­ened to set off a cas­cade of woe across Europe that could have swamped the nascent eco­nomic re­cov­er­ies in the United States and else­where. That’s due in large mea­sure to the growth out­side Greece since then, the re­forms en­acted by other strug­gling Euro­pean na­tions, and the work by the IMF and other multi­na­tional credit agen­cies to ab­sorb much of Greece’s debt from banks and in­vestors.

Nev­er­the­less, for Greece’s sake, it would be good to see the coun­try and its cred­i­tors unite on a new, pro- growth path out of the debt cri­sis. The coun­try needs more debt re­lief than cred­i­tors are of­fer­ing to­day, but drop­ping the euro would be a tor­tur­ous way to ob­tain it.

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