Editorial Board

Greek Unrest Adds Urgency to Need for Real Debt Relief: View

Greece’s extraordinary efforts to push through harsh austerity measures may soon win it a second bailout package from euro-area governments. But the victory is going to be Pyrrhic if it fails to slow and eventually stop the country’s downward economic spiral.

As European finance ministers Wednesday and push for more concessions from Greece, they have to recognize the depth of the country’s upheaval. Even taking into account the history of rioting in Greece, last weekend’s violence -- in which hooded youths torched as many as 45 buildings in Athens -- marked a dark turn.

Consider the depression into which Greece has fallen. Government data released Tuesday show that the economy contracted 7 percent in the final quarter of last year, compared with a year earlier, when the country was already deep into recession. The latest official figures for unemployment show a rise to 20.9 percent of the workforce in November, close to three times the pre-crisis figure. Forty-eight percent of Greeks below the age of 25 are out of work. Many people who nominally still have jobs have not been paid in months.

Homelessness, traditionally a minor problem in Greece, has risen sharply since the crisis started. Just less than half of all homeowners say they won’t be able to make their mortgage payments this year, according to a recent survey by the Hellenic Property Federation. That, according to the organization’s president, Stratos Paradias, is mainly due to property taxes introduced as austerity measures. Suicides, personal bankruptcies and company closures are all up.

Perhaps surprisingly, ordinary Greeks remain loyal to the euro. An opinion poll by the Greek agency Public Issue last week put support for keeping the common currency at 70 percent, largely unchanged from previous surveys. Greeks appear to trust their government’s warnings that as bad as the situation is now, leaving the euro would make it worse.

Indeed, it is the rest of the euro area that is beginning to hint at divorce. Since Friday, a parade of euro-zone politicians has emerged to say that, if necessary, a Greek exit from the euro would be acceptable because the country can now be firewalled from other weak economies.

Maybe, but this is a game of chicken aimed at pressuring Greece to accept painful cuts in spending that it probably would not otherwise apply. It ignores the fundamental question of whether Greece can be rescued by austerity alone, and by a limited default that spares German and other euro-area taxpayers additional pain.

As we have said before, Greece needs a much deeper default if a bailout is to work, and the currency union needs a larger commitment of money from its members to remain whole. The German plan is not working and urgently needs to be expanded.

Instead of warning Greeks that they aren’t needed, euro-area leaders should do a better job of explaining to them why painful measures are needed and how their own economies are sharing the burden of fixing what is, in the end, a misdesigned currency.

Should European leaders fail in this endeavor, the danger is that they will be blamed if the austerity medicine fails, regardless of whether many of Greece’s troubles are self-inflicted. Already, hyperbolic analogies between Nazi and current Germany are creeping into public discussion. The politics of anger can quickly overtake rational economic debate. How that would unfold is impossible to predict, but it is unwise to assume that Greeks would never decide to roll the dice on a euro exit, putting to the test assurances that contagion won’t follow.

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

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