Time Is Running Out (Again) for Greece

If only these people could agree.

Photographer: EMMANUEL DUNAND/AFP/Getty Images

The Greek economy is still in desperate trouble, and yet 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.

QuickTake Greece’s Financial Odyssey

The latest quarrel between Greece’s government and the International Monetary Fund, one of its official creditors, only underlines this continuing dysfunction. The impasse has to be broken. For that to happen, the European Union must take the lead, rethink its current position, and grant Greece debt relief.

Greece’s gross domestic product is still falling year over year. About a quarter of the population is out of work. Depositors pulled a further 500 million euros ($570 million) out of the country’s banks in February, showing that last year’s rescue plan has failed to restore confidence.

Time is running out. Greece is scheduled to repay about 2.4 billion euros of principal and interest on loans from the European Central Bank and the European Investment Bank on July 20. The nation’s total debt-financing needs in June and July exceed 10 billion euros -- money it doesn’t have, unless more bailout funds are released by then.

As these pressures build, the IMF and the European Union 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 is advocating another crisis -- a plainly false interpretation that testifies to the Greek government’s own bad faith. It’s true, though, that the IMF should not 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 Greek crisis. Add to this the possibility that Britain 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 one to solve. Yet Europe lets it drag on.

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 their nonperforming loans, even if the buyers are so-called vulture funds. The creditors are entitled to insist on further effort -- but without new debt relief, the EU is demanding the impossible.

There’s plenty of blame to go around for Greece’s endless depression, but right now it falls mainly to the European Union to stop the next Greek crisis before it happens.

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