A Greek Surprise

Creditors no longer fear that Greece might leave the euro.

The Wall Street Journal

March 24, 2015 7:32 p.m. ET

When Greece’s government struck a deal with creditors last month to extend its bailout, we warned that the next Greek crisis would come when that four-month agreement ran out and Athens’s failure to reform triggered a new crunch. Turns out we were optimistic. It took Greece barely four weeks to roll back to the cliff.

Athens could run out of cash in mid-April, as tax revenues plummet and creditors withhold the last €7.2 billion in financing under the current bailout. Should Athens somehow avoid defaulting on a repayment due to the International Monetary Fund and a rollover of treasury bills next month, it still would need a third bailout after June since the government has scared off the private investors who might have bought Greek debt. Release of the last of the current bailout, the conclusion of a new deal, and private financing all look less likely the longer the Syriza party remains in power.

That’s because in the four weeks since last month’s deal, Prime Minister Alexis Tsipras has failed to deliver his promised reform agenda. Athens also backtracked on a central commitment of the February deal—a pledge not to implement major fiscal policies without consulting creditors—by unilaterally legislating food stamps and free electricity for low-income Greeks.

In recent days, prosecutors appear to have revived a shoot-the-messenger case against Andreas Georgiou, the head of the official statistics agency and former IMF statistician who has tried to repair government bookkeeping after rampant deceit about the deficit triggered the crisis in 2010. He was first accused of “breach of duty” in 2011 for supposedly lying Greece into its bailout by exaggerating the size of the deficit. The Greek government is also demanding up to €162 billion in reparations from Berlin related to Germany’s occupation of Greece during World War II.

The surprise for Syriza is that its lack of seriousness about reform is matched by a growing conviction among European policy makers and investors that Greece’s departure from the eurozone wouldn’t trigger a broader crisis. Bond yields have stayed low elsewhere in the eurozone throughout the negotiating chaos since January’s election. Europe is growing bored with Greece’s economic tragedy and especially its political farce.

A euro exit would be a disaster for Greeks, who would be left holding devalued drachmas in a stagnant economy. Then again, Syriza and other anti-euro parties won more than 50% of January’s vote, and no party in Greece seems particularly invested in serious reform. So perhaps the Greeks deserve to get what they seem to want.

As for the rest of the eurozone, there’s a growing sense that the best purpose Greece could now serve is as a demonstration of the dangers of failing to make other economies competitive. You can never save someone from himself, but you can try to learn from a bad example.