Editorial Board

EU's Greek Drama Needs a Final Act

Photographer: Louisa Gouliamaki/AFP/Getty Images

Judging from Wednesday's vote in the Greek parliament, Prime Minister Antonis Samaras may not get the mandate he wants to keep economic austerity measures in place and avoid defaulting on the country's debt. His would be the responsible path, but it's easy enough to see why Greeks wouldn't want to follow it.

The dispute is haunting international investors again because the European Union in general, and Germany in particular, refuses to write off any part of Greece's sovereign debt. Yet, as most economists acknowledge, the country can never emerge from under its current debt pile -- now close to 180 percent of gross domestic product. And the prospect of endless years of austerity spent in the attempt is political poison.

Samaras brought forward Wednesday's vote for a new president, the first of three, as a vote of confidence. He is essentially daring members of parliament to reject his candidate, Stavros Dimas, because that would force new parliamentary elections -- elections that the anti-austerity, neo-Marxist Syriza coalition might win. Judging by this first vote, in which Dimas secured just 160 votes, it's going to be an uphill struggle. To win in the third round later this month, Dimas will need 180 votes.

Greece, Europe and the bond markets have been on this brink before. Yet each time the circumstances are a little different.

For one thing, after six years of austerity policies mandated by the bailout agreement -- which have shrunk output and real wages by a fifth -- the country is now exhausted. The Greek economy may be growing again, but 1 in 4 Greeks are still out of work, and more than 70 percent of them are long-term unemployed.

Those are just numbers, of course, and Greece had certainly been living beyond its means. But what has austerity meant for ordinary Greeks? For one thing, they have gone without adequate health care. Budget cuts have slashed state spending on health by a quarter, and on mental health, in particular, by half. Suicides have risen by 45 percent. HIV infections have increased 10-fold (as needle and condom programs have been reduced). And malaria has returned after 40 years (with spraying programs decreased).

With mainstream political parties offering more of the same austerity -- even now that the government is running a primary budget surplus -- many Greeks are looking to Syriza. It promises to boost spending, reverse the budget cuts, provide free electricity, and yet somehow avoid a formal default or a return to the drachma from the euro. The party says it will persuade international creditors to restructure Greece's debt and fund Syriza's spending spree.

That's nuts, of course, except for the restructuring part, which is exactly what Greece's creditors should do. The country has already secured some debt relief, from private creditors, not to mention 240 billion euros in bailout loans from the EU and the International Monetary Fund. Yet the bailout also rescued the German and French banks that loaned Greece money. So restructuring would not only be good for the euro area, but it would also fairly share more of the pain.

The right deal for Greece's creditors to make now -- the so-called troika of the EU, the European Central Bank and the IMF -- isn't more funds in exchange for more austerity. It should be debt forgiveness in exchange for the deep economic reforms that are needed to turn Greece into a viable economy. Samaras has fallen behind on such reforms, while Syriza wants to unravel those already accomplished, in pursuit of an impossible left-wing utopia.

Samaras knows what it is to be the irresponsible actor in his country. Before he was prime minister, he himself opposed the bailout that Greece negotiated in 2010. (That one was needed to unwind the vast debts that Samaras's own party, New Democracy, had piled up the last time it was in power.) And it has been his miscalculations and growing populism that have led to the political nail-biter under way in Athens.

So this latest Greek drama is less a contest between responsibility and extremism, as European Commission President Jean-Claude Juncker put it recently, than it is evidence Europe should no longer push Greeks to pay down their debt with more budget cuts. Whoever is in power in Greece next year will not be able to manage greater austerity.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.