On the Gredge

Economist
April 25, 2015

Eventually every long-running drama, from “Downton Abbey” to “Dr Who”, feels formulaic. So it is with Greece’s debt saga. For five years it has followed a wearily familiar script of unpayable debts, aborted reforms and 11th-hour compromises that let the country stagger on inside the single currency. That history has lulled many into expecting the usual denouement in the latest wrangling between Greece’s Syriza government and its European creditors. But this is looking ever less likely. Unless Syriza suddenly capitulates—and a meeting of euro-zone finance ministers on April 24th is one of its last chances to do so—Greece will fail to pay its creditors. If that happens, its exit from the euro will be just a step away.

Greece has already restructured its debts once, in 2012. It now owes money mainly to other European governments, the European Central Bank (ECB) and the IMF. These official creditors have slashed interest rates and stretched out maturities, but not enough. With a debt stock of 175% of GDP, Greece will need more relief. Most European politicians quietly accept this. The danger lies in a chaotic default born of brinkmanship. The Greek government has bills to pay and no money to pay them. It is resorting to desperate measures. This week Alexis Tsipras, the prime minister, ordered local-government bodies to move spare cash to the central bank (see article). That might buy a few weeks. But in the end Greece will not be able to pay its pensioners, let alone its creditors, without a deal with its European paymasters that unlocks new loans.

That seems increasingly unlikely, for three reasons. The first is a deep loss of trust on the part of Greece’s creditors. The euro zone has always had only a faint version of the solidarity that characterises a true union. But since Syriza came to power that has been ripped apart. The stunts and stumbles of Greece’s inexperienced government are a factor. But the bigger problem has been Syriza’s unwillingness, or inability, to name, let alone implement, the reforms that it will undertake in return for its next tranche of money. Once Greece’s creditors might have taken general promises; now they want specifics.

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