Greece's Unsustainable Burden

Wall Street
Editorial
May 10, 2011

The European Union's bailout of Greece is failing. Athens has asked for a two-year extension on its deficit-reduction targets, largely because it has come up short on its promises to collect more taxes from a population that has made evasion a national pastime. Yields on long-term government debt, at 15.7%, are near euro-era highs. And by the end of the month, the EU and the International Monetary Fund will have to decide whether to disburse the next €12 billion in loans to Greece as part of their €110 billion rescue package.

So the question is, how long will the EU and IMF maintain the charade? Nobody wants Greece to fail. Yet the closer we get to March 20, 2012—the date at which Athens must roll over €14.5 billion in maturing debt—the less tenable the country's position becomes.

In March, the IMF estimated that Greece's borrowing costs on new debt would be 5.6% next year, or some 10 percentage points below current yields. That assumption was, er, optimistic. At current borrowing costs, Greece can't return to the market on schedule. And if it can't do that—a point pretty much conceded by Standard & Poor's when it downgraded Greece to a single-B rating on Monday—it will run out of money unless it restructures its debt or takes further loans from the IMF and Brussels.

More