Greece and its creditors are wrestling with the country’s debts yet again. In 2010, Greece was given one of the biggest bailout programs in history. It got new lending in return for fiscal austerity, but its debts weren’t reduced: Creditors were spared any write-offs. Experts objected that the program put too big a burden on Greek taxpayers, was neither politically nor economically sustainable, and would need creditors to absorb some losses. They were right then, and they still are.
Despite limited moves to force creditors to take more responsibility, such as an extension of maturities and lowered rates, the basic pattern hasn’t changed. As a result, Greece’s debt keeps rising. It now stands at 180 percent of gross domestic product.
The new fix under discussion, according to a recent Bloomberg News report, would extend Greek loan maturities further, to 50 years from 30, and lower the interest rate paid by half a percentage point. Another bailout loan, adding €15 billion ($20.5 billion), also seems likely. All this might keep the show on the road and allow the so-called troika representing Greece’s creditors—the European Commission, the European Central Bank, and the International Monetary Fund—to say the country can meet its debt target of 124 percent of GDP by 2020. Of course, after every previous negotiation, the group also said Greece was on track.
The arithmetic keeps failing because the politics and economics refuse to play along. Greeks have come to hate the troika, blaming it as much as their own leaders for a prolonged depression that has left 60 percent of young Greeks unemployed. Growth is forecast to turn positive this year for the first time since 2007, but the current approach will bring austerity and the suffering that goes with it for years. The pro-bailout coalition ruling Greece is fragile. Without debt reduction, the program is no more likely to stick than its predecessor. Investors, for the moment, aren’t worried that Greece might soon crash out of the euro area, so the pressure for a new approach isn’t intense. Even so, Greece still needs debt forgiveness—and the European Union needs to show that it’s capable of learning from its mistakes.