Greece Won’t Default, Yet

The Wall street Journal

Germany has been a rich source of saber rattling over Greece, much of it for domestic political consumption.

In the end, Germany will have to give in and let Greece have its September bailout installment, giving Athens until the next tranche in December to see if its new taxes can work off a dangerously widening budget deficit.

Senior IMF officials now acknowledge as much, sympathizing with the headwinds Greeks face with their economic recession. The alternative is too terrible to contemplate, with crumbling European credit markets in recent days giving only a pale hint of what a Greek default would wreak.

So Greece has responded to threats from directions north with a new plan to raise EUR2 billion with extra property taxes.

More new taxes in Greece? That makes it just as likely that we will be here again in December, with a deepening recession, more missed budget targets, more agonizing over bad choices and more concessions.

These taxes will be imposed on a country burdened with a 16% jobless rate and an economy contracting at better than a 7% rate. Household and business incomes are shrinking, and at a time when tempers on the streets are running hot. Two days after the announcement of higher taxes, Greek tax collectors go on a 48-hour strike over pay cuts. Other civil servants are following suit because of 100,000 job cuts. The property tax is to be paid via electric bills, but it remains an open question if there will be anyone there to count it.

Cynics will say that many Greeks just won’t pay at all. One of them is Germany’s representative on the European Commission, Guenther Oettinger, who proposes that the European Union relieve Greek tax officials of their duties and replace them with Northern European accountants and enforcers. What’s more, Mr. Oettinger proposed that deep-deficit euro-zone countries should have their flags flown at half-mast outside EU buildings.

A poll by German ZDF television found that 76% of Germans surveyed are against expanding the EU’s bailout facility next month to save bankrupt euro-zone members.

Meanwhile, Germany’s Der Spiegel magazine reports that the German finance ministry is working on several scenarios that could come from a Greek default on its debt. It would be irresponsible not to.

But all the hand wringing in Brussels and frustration in Berlin cannot have the disruptive impact on the euro’s stability that the Greek people will have if the screws keep turning tighter.