Greece Still Hasn't Turned the Corner
Greece returned to the private debt market this week for the first time in years, raising 3 billion euros at a relatively affordable interest rate of 4.6 percent. That’s encouraging news -- but it doesn’t mean the euro zone’s most flattened economy is on course for sustained growth.
The economy is showing signs of life, growing a bit in the first quarter, and the government has gotten a tighter grip on the budget. But Greece’s long-term debt position is still dire, and its deeper structural reforms have barely begun. Greece hasn’t yet put its problems behind it.
Investors are apparently willing to take an optimistic view of their likelihood of getting repaid. The International Monetary Fund has helped fuel this optimism by approving “in principle” new assistance to Greece, which serves as a seal of approval for its policies and those of its euro-zone official creditors.
But note that the IMF is stretching the meaning of “in principle” beyond the bounds of ordinary usage. It says the so-called standby arrangement will become effective only after its officials get “specific and credible assurances from Greece’s European partners to ensure debt sustainability.” It’s been asking for such assurances for months and Europe’s governments still haven’t delivered. It’s unclear why the fund thinks this state of affairs warrants its support, even “in principle.”
Greece’s position isn’t hopeless by any means. Europe as a whole is doing better, and the short-term outlook for growth in Greece is fair. But the situation remains serious. The budget stringency demanded by the EU, and achieved against the odds, won’t support future growth: That has to come from supply-side reforms to liberalize the labor market, promote investment and encourage domestic competition. Long-term financial stability depends on progress in those areas -- and on long-delayed measures to make the country’s debts manageable.
It’s good that Greece is growing again, albeit hesitantly, and that private investors are willing to lend. But the last thing Greece needs is complacency about its prospects.
--Editors: Clive Crook, Michael Newman
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