Financial Times
Editorial
February 21, 2012
By striking a financing deal in the early hours of Tuesday morning, eurozone leaders went further than their previous efforts to staunch Greece’s economic bleeding, but proved themselves unable to settle on a solution that will not need to be revisited yet again.
Even in the best of cases, this deal could ever only solve one part of the Greek predicament: its debilitated public finances. These must be fixed or they will continue to suck Greece’s economy down with them. This has not been averted – but it will not happen next month through uncontrolled default at a bond redemption, with unforeseeable consequences for Europe.
Supposing that the latest rescue package does work – in the sense that Athens’ debt burden peaks and falls as planned – Greece must still find a way out of the relative poverty it is now descending into. Like other countries badly hit by the crisis, it is many more years away from core European levels of prosperity than it thought. Financial uncertainty, economic contraction and political turmoil sparked by the programme risk making structural reforms needed for long-term growth harder to implement.
But even the narrower purpose of stabilising public finances is not secured with the new deal. True, this goal is closer than on Monday night. The fact that Athens is near primary balance – where tax revenues suffice to cover expenditures before debt payments – allows the eurozone to direct its loans to debt service and not to Greece’s domestic budget. Establishing a segregated account for this purpose is wise, as is Athens’ commitment to make debt service a constitutional priority. But the new €130bn that the official creditors have agreed to lend may not be enough even to cover Greece’s debt service.
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