Greece at the Cliff’s Edge

Creditors warn Athens not to expect a better offer.

June 11, 2015 6:52 p.m. ET

The Wall Street Journal

Greece’s talks with creditors entered a new stage Thursday as the International Monetary Fund withdrew from bailout talks. This is the bluntest in a series of increasingly impatient statements from creditors that all make the same point: Athens won’t get a better deal.

That may shock Alexis Tsipras, the far-left Prime Minister who has spent recent days trying to modify a final proposal prepared by creditors early last week, or at least plead for a nine-month extension of the current bailout. Creditors have offered some easing on Athens’ fiscal surplus targets. But they’re holding fast to demands for pension reform that Mr. Tsipras’s Syriza party promised Greek voters it wouldn’t implement.

It’s no accident that pensions have become the make-or-break issue in the talks. Pensions and wages account for 80% of government spending, and pensions alone cost Greece around 16% of gross domestic product each year, the highest proportion in Europe. Without reform, spending was on track to hit 24% of GDP by 2050, compared to 15% on current plan. No serious program for returning Athens to fiscal balance can ignore pension reform.

Yet progress has been slow in raising retirement ages that are low in comparison to most members of the Organization for Economic Cooperation and Development: Greek men retire at age 61.9 and women at 60.3, compared to an OECD average of 64.2 and 63.1, respectively.

Athens has also dragged its feet revising the list of “arduous professions” eligible for more generous benefits, a category that historically included hairdressers and bakers in addition to miners and steelworkers. Instead, Mr. Tsipras and his Syriza colleagues promised to increase pensions for some retirees and are resisting further reforms.

Mr. Tsipras says pension cuts of up to 50% are creating a humanitarian crisis. But he has offered no ideas for finding the money to keep paying generous benefits. Asking German taxpayers to fill the gap isn’t a plan, and deeper pension cuts or debilitating inflation are inevitable if Greece leaves the euro and can’t tap private markets to fund its fiscal deficits.

The difference between Syriza and the creditors on this point is so stark it’s unlikely that more time will make much difference. In the best case, a delay would leave time for some political accident to trigger an election that would return a saner government to power. But in the meantime, Greece, the eurozone and investors would suffer from the prolonged uncertainty. Syriza might even be emboldened if voters perceive another extension as a concession from creditors.

A Greek default and possible exit from the euro would be a catastrophe for Greeks and potentially costly for the rest of the eurozone. But despite telling pollsters they overwhelmingly support euro membership, Greeks voted in droves for Syriza and other antireform parties in January. If Greeks refuse to reform, other Europeans are not obliged to underwrite their refusal.