A Chance to Do Better on Greece

June 14, 2013

By THE EDITORIAL BOARD

The New York Times

The International Monetary Fund now has a chance to show what it has learned from past policy mistakes on Greece, mistakes it acknowledged last week. This week a delegation from the fund, the European Central Bank and the European Commission was in Athens to review Greek compliance with the terms of the latest bailout agreement, a condition for releasing this month’s $4 billion installment. Greek officials said they hoped the European examiners would show new flexibility on changing the agreement’s more counterproductive requirements.

Adjustments are most needed on tourism taxes and privatization deadlines. Foreign tourism is one of the few bright spots in the Greek economy, with as many as 17 million foreign tourists expected this year. Athens wants to attract more tourist spending by lowering the value-added tax on restaurants and tavernas from the current 23 percent to a more tolerable 13 percent. This means fewer tax dollars in the short term for the Greek government, but more jobs and revenues for the struggling private sector. The three official lenders should agree to this.

And while the trio’s insistence that Athens sell off mismanaged state enterprises and real estate is sound, the rate of sales to the private sector depends on the willingness of qualified buyers to pay fair market prices.

That process hit a big snag this week when the only expected bidder for Greece’s natural gas monopoly, a subsidiary of Russia’s Gazprom, unexpectedly withdrew. The reasons are disputed, but Greek officials say European Union misgivings about Gazprom’s extending its stranglehold over the union’s natural gas market was a factor.

Gazprom’s withdrawal cost Athens more than $1 billion in expected privatization revenues. Under the terms of the current bailout agreement, devastating new government spending cuts must now replace 50 percent of those lost revenues. That provision should be suspended until new sales terms can be worked out.

Greece’s economy shrank 6 percent last year and continued contracting at a 5.6 percent rate in the first quarter of 2013. It is now more than 20 percent smaller than in 2007. Overall unemployment is 27 percent, and the rate is more than twice that for people under 25. Surely the three lenders’ economic experts understand that shrinking a shriveled economy and idling more of its potential work force will not help pay off Greece’s debts.

The stubborn insistence of European officials that nothing is wrong with this picture probably means these officials will not respond constructively to Athens’s reasonable requests for relief. But the I.M.F., having expressed some regret for past error, should see more clearly the harm being done.

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