The Greece Issue Breeds Brinkmanship in the Eurozone

By THE EDITORIAL BOARDMARCH 20, 2015

The New York Times

Nobody expected that the discussions between Greece and the rest of the eurozone about a new loan agreement would go smoothly. But things seem to be going even worse than expected, with both sides sniping at each other and refusing to engage in meaningful negotiations.

Last month, Greece and its lenders — the 18 other countries that use the euro, the European Central Bank and the International Monetary Fund — agreed to extend a 240 billion euro (about $260 billion) bailout program for four months while they worked on a permanent deal. The hope was that during this time, Greece would start making changes like improving tax collection and reducing senseless regulations that make it hard to do business in the country. In exchange, Greece’s creditors would give it more leeway in how and when it paid back its loans.

But with debt repayments coming due, and fears mounting about a possible Greek default and exit from the euro, both sides seemed more eager to annoy each other than to grapple with fundamental issues. Greece’s prime minister, Alexis Tsipras, has been demanding German reparations for World War II, which seems almost beside the point. The German finance minister, Wolfgang Schäuble, has antagonized Greece with some name-calling, describing its finance minister as naïve.

The tone was much more civil and hopeful after a Thursday meeting in Brussels of top officials from Greece, Germany, France and various European institutions. But the leaders did not resolve any of their big disagreements, leaving the onus on Greece to produce a new list of policy changes to reform its hobbled economy. The two sides have squabbled over the wisdom of welfare measures like the food stamps, free electricity and housing allowances for the poor approved by Greek lawmakers on Wednesday. Some of these steps are necessary given the high rates of unemployment, hunger and homelessness in Greece, but they irritated European finance ministers who insist that Greece get its public spending under control.

The reality is that Greece and the rest of Europe have to find a way to live together. The eurozone might be able to survive if Greece decides to go back to using its own currency, but such an outcome will cast a pall over the entire European experiment by raising the possibility that other countries, like Portugal, Spain and Italy, might someday also decide to leave. And for Greece, leaving the euro would mean the government would have to default on its debts and would be unable to borrow money on the global market. The savings of its people would become much less valuable, and some large companies would feel compelled to move out of the country.

There is no doubt that Mr. Tsipras needs to move quickly to reform the Greek economy, which is running low on cash. Tax collections have fallen since his left-wing party, Syriza, took power in January; Greek businesses are complaining that they are not being paid for work they’ve done for the government; and some bigger companies have started moving cash to London. But pushing Greece into default by withholding the short-term financing it needs to pay its bills would be courting disaster.