Greece’s Quiet Crisis

Maybe Athens can’t help itself. No sooner had Alexis Tsipras’s government agreed to a last-minute deal to save the Greek economy from collapse than it began backsliding on the terms. Now the crisis threatens to erupt again as Mr. Tsipras drags his feet on economic reform while creditors withhold some €12 billion ($12.88 billion) in funds promised by August’s bailout.

   The cause of the latest feud is a bankruptcy reform that would make it easier for banks to foreclose on homes. Stricter measures are necessary to help banks manage a burden of nonperforming loans that’s approaching 50% of their assets. Mr. Tsipras and his far-left Syriza party wanted to protect primary residences valued at up to €300,000 from foreclosure - too high a cap for the creditors.

   This dispute won’t drive Greece out of the euro. The issue is too arcane, and anyway Athens doesn’t need the tranche of bailout money immediately to avoid a default. The bulk of Greece’s bad loans were made to failed businesses, not mortgage borrowers.

   But the stalled bankruptcy overhaul illustrates a broader trend. Athens has missed deadlines to come up with alternative revenue in lieu of a 23% value-added tax on education; to cap prices of generic drugs; and to tighten the rules for a program allowing taxpayers to stretch out payment of arrears over more than eight years. In these and other areas, Athens has passed legislation late or not at all.

   And those are the easy parts. Athens has until December to devise a comprehensive pension reform that would include consolidation of fragmented pension programs, cuts in benefits for some retirees and increases in social-security taxes. Anger over pension reform is what propelled Syriza into power in January.

   One reason for this Athens stall is surprisingly strong (by Greek standards) economic growth of 0.1% and 0.9% in the first two quarters of this year. This is providing an alibi for politicians to delay reforms in the hope that maybe things will turn around on their own.

   Yet unemployment remains at an astronomical 25% (nearly 50% for those younger than 25), and business surveys suggest the growth won’t last. The bailout’s increases to corporate, personal and consumption taxes will be a drag on growth as they take effect, making it all the more important to pursue privatizations, opening of white-collar professions to more competition, product-market liberalizations and other measures that will stimulate business investment and hiring.

   Greece’s real crisis has nothing to do with the haggling over a bailout payment everyone knows Athens will eventually get. It’s that a political consensus for far-reaching supply-side reforms doesn’t exist, and Greece’s economy won’t grow until it does.

Πηγή: wsj.com