Europe has been right to demand that, in exchange for bailout financing, Greece carry out painful structural reforms to make its economy more competitive and able to generate more revenue to pay down the country’s huge debts. Without that pressure, Athens would likely never be able to overcome fierce resistance from public-sector unions, professionals, the wealthy and all of the special interests determined to keep doing business as usual.
But Europe has been dead wrong to simultaneously demand that Greece impose steep new taxes and deep social spending cuts guaranteed to prolong and worsen an already severe recession. That will make it impossible for the country to earn its way out of debt.
With Greece’s diminished prospects threatening the balance sheets of banks across Europe, the European Central Bank announced Thursday that it will add new liquidity to the Continent’s banking system. But its plan to purchase $53.6 billion in special bonds issued by banks and other financial institutions will not be enough. Europe’s leaders need to turn away from the austerity policies that are stymieing growth, not only in Greece but in stronger economies like Germany’s as well.
The Greek government now acknowledges that it will miss the deficit reduction targets it had promised the European Union and the International Monetary Fund it would achieve this year. Europe and the I.M.F. are working to set new terms for the next bailout installment.
If further aid is conditioned on a similarly incoherent set of economic policies, Greece will eventually be forced into default, creating an even deeper hole in European bank balance sheets and adding to fears that other deeply indebted countries might soon default as well.
Demands for harsher austerity should be deferred to give reforms time to do their work. With European governments now moving to recapitalize their banks, Greece’s private bank creditors should be pressed to accept deeper restructuring deals on existing Greek debt.
The I.M.F. and Europe should continue to push Athens for further liberalization of professional labor markets, cost-efficient delivery of public services and a more broad-based and uniformly enforced tax system. And they must keep pressure on Greece to eliminate tens of thousands of nonessential public-sector jobs — freeing money that could be used to promote economic growth.
For decades, Greece’s main political parties heedlessly expanded public payrolls to reward supporters and artificially hold down unemployment. This practice helped push Greece deeply into debt and must now be reversed. Future bailout payments should also be conditioned on the Greek government actually carrying out reforms, not just winning parliamentary approval.
Preventing Greece’s default requires aggressive reforms but also breathing room to permit economic recovery and growth.
Origin
Source: New York Times
But Europe has been dead wrong to simultaneously demand that Greece impose steep new taxes and deep social spending cuts guaranteed to prolong and worsen an already severe recession. That will make it impossible for the country to earn its way out of debt.
With Greece’s diminished prospects threatening the balance sheets of banks across Europe, the European Central Bank announced Thursday that it will add new liquidity to the Continent’s banking system. But its plan to purchase $53.6 billion in special bonds issued by banks and other financial institutions will not be enough. Europe’s leaders need to turn away from the austerity policies that are stymieing growth, not only in Greece but in stronger economies like Germany’s as well.
The Greek government now acknowledges that it will miss the deficit reduction targets it had promised the European Union and the International Monetary Fund it would achieve this year. Europe and the I.M.F. are working to set new terms for the next bailout installment.
If further aid is conditioned on a similarly incoherent set of economic policies, Greece will eventually be forced into default, creating an even deeper hole in European bank balance sheets and adding to fears that other deeply indebted countries might soon default as well.
Demands for harsher austerity should be deferred to give reforms time to do their work. With European governments now moving to recapitalize their banks, Greece’s private bank creditors should be pressed to accept deeper restructuring deals on existing Greek debt.
The I.M.F. and Europe should continue to push Athens for further liberalization of professional labor markets, cost-efficient delivery of public services and a more broad-based and uniformly enforced tax system. And they must keep pressure on Greece to eliminate tens of thousands of nonessential public-sector jobs — freeing money that could be used to promote economic growth.
For decades, Greece’s main political parties heedlessly expanded public payrolls to reward supporters and artificially hold down unemployment. This practice helped push Greece deeply into debt and must now be reversed. Future bailout payments should also be conditioned on the Greek government actually carrying out reforms, not just winning parliamentary approval.
Preventing Greece’s default requires aggressive reforms but also breathing room to permit economic recovery and growth.
Origin
Source: New York Times
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