Save Greece by Saving Its Economy First

By THE EDITORIAL BOARD
FEB. 21, 2017


The New York Times

With the Greek government set to run out of cash by the end of July, the country’s main creditors in Europe continue to demand harsh budget cuts as a condition for crucial loans. But after a decade of failing to save Greece, Germany and other European nations, along with the International Monetary Fund, ought to try a different approach, one that makes reviving the economy a priority.

Greece’s creditors appear willing to provide new loans to pay off debts coming due this year as long as the country commits to achieving a fiscal surplus of 3.5 percent of gross domestic product before interest payments by 2018. The I.M.F., more sensibly, has argued for a surplus of 1.5 percent. It also says that European officials should commit to reducing the Greek government’s debt, which is so huge that it equals about 180 percent of the country’s annual economic output. That debt relief could come in various forms, including giving the country more time to repay or reducing the amount owed.




The monetary fund is right. Requiring the country to run big budget surpluses when its economy is growing at an annual rate of only 0.4 percent is cruel and counterproductive. Based on current trends, the fund projects that the country’s debt will increase to more than 250 percent of G.D.P. during the next several decades. European officials are much more optimistic, but that hopefulness is based on the dubious assumption that Greece can run large budget surpluses for decades to come.

European, I.M.F. and Greek officials ought to be coming up with ways to revive the Greek economy, reduce unemployment — 23 percent in November — and strengthen the financial system; borrowers of nearly half of all loans are not making payments. Greece and other European countries can invest in improving crumbling public services and infrastructure. Buses in Athens make do with worn-out tires, often at great risk to public safety, because there is not enough money for spare parts. And hospitals cannot hire doctors or buy medicines and syringes.

Greece could pay those costs if creditors accepted lower surpluses. The European Union could offer grants and loans for projects that improve the economy. The government can raise money by making sure its tax collection agency is not subject to political pressure. Prime Minister Alexis Tsipras and previous leaders have committed to that, but experts say the agency is still subject to meddling. Getting more people, especially the middle class, to pay taxes — more than half of households don’t — would also help raise money without hurting the economy. And the country needs a more efficient system for restructuring mortgages and business debts to deal with bad loans and free up banks to lend money again.

Only once a recovery takes hold will the government have money to pay back its debts. After squeezing Greece no matter the cost, European officials ought to recognize that their analysis has been flawed. The more they insist on getting Greece to cut spending and raise taxes, the further they get from reviving the nation so that it no longer needs their financial support.

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