Crisis in Europe Averted (For Now)

Plato's bankrupt republic.

Photographer: Yorgos Karahalis/Bloomberg

Europe is taking a break from the crisis over Greece it's engineered over the past few weeks. It's a welcome breather -- but that's all it is. The euro system's governments haven't solved the problem, and unless they try a new approach, they will keep making it worse.

The recent standoff didn't achieve much. Greece needs short-term financial help while it negotiates a new economic program, and has been arguing with its euro-zone partners over the terms of this relief. It delivered a new list of policy proposals on Monday, and on Tuesday this was deemed "sufficiently comprehensive to be a valid starting-point for a successful conclusion of the review."

What does that mean? Almost nothing. The Greek proposals are sensible -- but also vague, as the International Monetary Fund points out. They concentrate on reforming the tax system and streamlining the public sector. Excellent goals, but they've defeated previous Greek administrations. Despite all the back and forth, there's still no detailed plan.

Greece's Fiscal Odyssey

Talks on short-term relief will continue and aren't due to conclude until April. Meanwhile, the last of the existing bailout funds won't flow, and Greece has debt-service payments coming due. Investors hope the European Central Bank will help Greece meet those obligations, but there's no guarantee: From Tuesday's "valid" starting point, talks could easily move in an invalid direction at any time. Talks on the successor program haven't even begun. It adds up to a heavy burden of uncertainty, holding back Greece and the wider European economy.

The euro group ministers and the ECB can help by making it clear that they'll deliver the short-term support Greece needs without further drama, and that talks on the successor program will start at once.

This bigger negotiation won't be easy, though the basic idea is simple. Greece's flattened economy needs a gentler schedule of fiscal restraint and a new round of debt restructuring, combined with reform of its labor market and public sector. The finance ministers can best serve their own countries' interests -- and improve the odds of getting repaid -- by seeing that Greece's plight warrants further help.

They should be open-minded and willing to come to terms. In the past few weeks, they've tested the alternative of exerting pressure by holding the euro system on the edge of breakdown. They've precious little to show for it. Europe's government by crisis needs to stop.

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