August 14, 2012
Soon the Greek crisis will return to the headlines: a bond redemption fall due next week and the creditors’ troika of enforcers will at some point give their verdict on whether Athens’ performance is sufficient for another tranche of rescue loans. These are opportunities for more bad news, especially when the latest figures show the economy shrinking by an abysmal 6.2 per cent since a year ago.
Two things are crucial. The Greek government that gained power in June must prove that it will, unlike its predecessors, be serious about the rot in the state’s management of the economy. And if it does, its creditors must give Athens a chance to succeed.
There is some sign of the first, though the jury is still out. The government has yet to identify all the €11.5bn of new cuts it promises to make. But a new debt sustainability analysis emerging out of Athens indicates an active interest in understanding what it takes to right the ship that has so far been lacking. Moreover, it makes some valid points that Greece’s helpers would do well to ponder.
The analysis takes on board the all-important fact of a much deeper recession than the adjustment programme assumed. That makes deficit cuts harder to find and more likely to be counterproductive. If the Greeks are willing to do the right thing, there is a case for giving them more time to do it.