Greek Bailout Retraces a Contentious and Dangerous Route

by Marcus Walker

Wall Street Journal
March 8, 2016

Greece’s bailout inspectors resume talks in Athens on Wednesday to try to unblock the Greek rescue program. The struggle over Greek budget targets, austerity, loans and debt relief is flaring up again at an awkward time. Europe, by effectively shutting down the Balkan migration route, is turning Greece into a big holding pen for refugees and other migrants. Managing that mess will be difficult enough. Nobody wants another crisis over Greek debt and euro membership like in 2015.

Still, the 2016 Greek debt deadlock is potentially explosive even on its own. Here’s why.

Q: Only last summer Greece and the eurozone agreed on a new bailout deal. Now what’s the problem?

A: In July, Europe averted a Greek exit from the euro but didn’t fix the basic problem. Greek bailout plans since 2010 have kept breaking down because they have asked Greece to reach large budget surpluses that have proved beyond the country’s brittle political system. The alternative would have been to target lower surpluses and restructure the nation’s debt. But European creditors, led by Germany, have consistently rejected that alternative.

Now the International Monetary Fund has lost patience. Unlike the euro zone, it didn’t agree on a new loan program with Greece this past summer. The IMF’s insistence that there are only two ways to fix Greece – either via another heavy austerity program centered on pension cuts or with generous debt relief from Europe – is exposing the contradictions in July’s deal.

German Chancellor Angela Merkel needs the IMF to resume lending to Greece. She has always said the IMF’s participation is vital for credibility. And German officials say they won’t ask their parliament, the Bundestag, to release any more euro-zone loans until Greece agrees to a new IMF program.

But the IMF is at loggerheads with both Greece and European institutions, led by European Commission, about what needs to be done.

A solution is needed before July, when Greece would need fresh bailout funds to repay debts.

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