August 19, 2015
Europe should restructure Greece Debt: Debt Relief?
by NY Times Editorial Board
The International Monetary Fund is doing the right thing by not participating in a deeply flawed loan agreement that European leaders have negotiated with Greece.
Years of misguided economic policies sought by Germany and other creditors have helped to push Greece into a depression, left more than a quarter of its workers unemployed and saddled it with a debt it cannot repay. The latest European attempt to bail out Greece will make the situation even worse by requiring the country’s government to cut spending and raise taxes while increasing the country’s debt to 200 percent of its gross domestic product, from about 170 percent now.
The I.M.F., which joined European countries in their first two loan programs for Greece, says it cannot lend more money because Greece’s debt has become unsustainable. In a statement on Friday, the fund’s managing director, Christine Lagarde, said Greece’s creditors had to provide “significant debt relief” to the country. Last month, the fund said creditors needed to either reduce the amount of money Greece owes or extend the maturity of that debt by up to 30 years.
This is a much tougher position than the I.M.F. has taken before. In 2010, it did not insist that Greek debt be restructured. That was a big mistake because it left Greece with more debt than it had before the crisis and reduced the government’s ability to stimulate the economy. What Ms. Lagarde, a former French finance minister, says matters because European leaders like Chancellor Angela Merkel of Germany want the fund to be a part of the loan program since it has extensive expertise in dealing with financial crises.
European officials have said only vaguely that they might be willing to consider debt relief. Many lawmakers and voters in other European nations oppose providing more help because they think the Greek government has failed to carry out the economic and fiscal reforms that would make the country more productive.
There is no question that Prime Minister Alexis Tsipras of Greece needs to do more to raise economic growth. But even if he does everything European leaders are asking him to do — a list that includes cutting pensions, simplifying regulations, privatizing state-owned businesses — the country will still not be able to pay back the 300 billion euros it owes. Rather than go through a messy default in a few years, it is in Europe’s interest to heed the I.M.F.’s advice and restructure Greece’s debt now.