BRUSSELS – The seemingly interminable negotiations between the new Greek government and its international creditors – the International Monetary Fund, the European Central Bank, and the European Commission – on a new loan deal have entered a dangerous phase. At this point, a mistake on either side threatens to trigger the kind of accident that could precipitate a new crisis in Europe.
The IMF seems ready to throw in the towel – not least because of the recent revelation that Greece could post a small primary budget deficit (which excludes interest payments) this year, rather than the planned sizeable surplus. But, with Greece’s economy tanking again, its government is convinced that the current repayment program is not working – and that, in the absence of significant adjustments, it never will.
Fundamental to Greece’s case for new bailout terms is the narrative – reinforced by its current economic travails – that it has been a victim of excessive austerity. But this neglects a crucial fact: austerity worked in Europe’s other crisis-hit countries. Indeed, Portugal, Ireland, Spain, and even Cyprus are showing clear signs of recovery, with unemployment finally falling (albeit slowly and from high levels) and access to capital markets restored.
Why is Greece different?