Greece bailout ends, not worries
Europe’s debt woes continue to imperil region’s economy.
FRANKFURT, GERMANY — Greece officially completes its bailout program on Monday, after eight years of cutbacks enforced in return for massive loans and following an economic collapse on the scale of the Great Depression.
The exit is a welcome milestone. But it offers little assurance that the 19-country euro currency union has left behind its problems with
debt. The huge debt pile in Greece and an even bigger one in Italy will remain a lurking financial threat to Europe that could take a generation to defuse.
Europe’s debt problems have repeatedly raised fears over the past decade of a break-up in the euro, a worstcase scenario that would cause severe economic damage in the region and shake world financial markets and trade.
In Greece, successive governments had borrowed heavily for three decades to fund generous spending on pensions and jobs given to political supporters, while tolerating widespread tax
evasion and covering up bud- get shortfalls. All that blew up mightily in October 2009, when Greece admitted its budget deficit was much big- ger than previously reported. Shocked investors no longer would risk loaning Greece money at affordable rates, forcing the government to turn to rescue loans from the other eurozone coun- tries and the International Monetary Fund.
The loans came with tough conditions: closing deficits, which led to aggressive tax increases and spending cuts; and a raft of reforms aimed at improving tax collection and the business climate in general. The economy, hit hard by spending cuts, shrank by a quarter. The other eurozone coun- tries gave Greece enough cash to cover 22 months of financing needs and signifi- cantly eased its debt repayment terms. Greece needs to pass the quarterly reviews to activate that debt relief. But Greece will get no new reform Some requirements. experts say that the best way to help Greece would be for eurozone coun- tries to write off a part of the loans altogether. But govern- ments have balked at that. The bailouts were unpopu- lar, particularly in Germany, and loan forgiveness would be a tough sell for leaders such as German Chancel- lor Angela Merkel. The IMF and economists say that if part of Greece’s loans are not written off, its debt loan will eventually start to rise out of control again.