The Next Greek Crisis

This month’s Greek crisis ended Friday as eurozone finance ministers agreed to extend the country’s current bailout by four months. Mark your calendar for June, when this deal nears its expiration and the next Greek crisis begins.

The deal amounts to a near total capitulation by Prime Minister Alexis Tsipras and his far-left Syriza party to Greece’s creditors, and especially to the Germans.

The exact conditions will be negotiated starting next week, but to get to this point Berlin extracted a promise from Athens to abide more or less by the conditions of the current bailout. Syriza also stepped back from some of its more radical promises, such as a halt in privatizations.

All of this manages the fallout from the election that brought the antireform Syriza to power, and it may ease some capital flight. But it does nothing to address Greece’s deeper problem: From the moment Athens admitted in 2009 that its government finances were in disarray, no leader has devised a credible reform plan to generate the growth that would let Greece repay its debts.

Creditors have restructured Greek debts such that most of it now consists of long-maturity, low-interest loans owed to other governments. The conditions attached to those bailouts included some economic reforms, such as deregulating the labor market, privatizing state-owned companies and improving tax enforcement. The conceit remains that external forces can mandate reform. But creditors lack the means to enforce reform, while successive Greek governments on left and right lacked the desire or political skill to implement them. Friday’s deal doesn’t change this reality.

Greeks will suffer most as they feel the squeeze of wage and pension cuts and tax hikes but experience none of the growth that supply-side reforms would bring. They may eventually find themselves holding devalued drachmas if Greece has to exit the euro. But they also keep electing candidates who campaign against reform, such as Mr. Tsipras and his center-right predecessor Antonis Samaras, who in 2012 promised voters he opposed the bailout before he supported it in office.

Greece is merely the worst case of Europe’s growth deficit. Economies must grow faster to finance rising debt, aging populations and entitlement states, but politicians willing to advance reform or voters willing to elect them are in short supply.

(Πηγή: www.wsj.com)