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

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.