End “Extend and Pretend” With Greece
The current talks between Greece and its creditors show little will on either side to overcome the failures of the past five years: the "troika" maintains its myopic focus on fiscal austerity; Greece remains reluctant to reform. With the economy in free fall, both sides need to accept that “extend-and-pretend” is no solution at all.
LONDON – Greece needs an agreement now with its creditors (the so-called troika comprising the International Monetary Fund, the European Commission, and the European Central Bank). Yet all parties are pursuing a disastrous “extend-and-pretend” strategy with a narrow focus on fiscal issues and pensions. In fact, rumors are now emerging that the Greek administration and the troika are considering yet another extension of an agreement that was supposed to end last year.
At the core of the Greek crisis are structural problems: a dysfunctional public administration, oligopolistic product markets, ludicrous regulatory burdens, bureaucratic red tape, and an absurdly slow judicial system. Without a clear strategy to address them, any agreement will lack credibility.
But if this is true – and many seem to believe it is – the current strategy is bound to fail for two reasons. First, any comprehensive package of structural reforms can be implemented only if austerity is relaxed. Second, an extension would prolong the sense of uncertainty that has so far jeopardized Greece’s recovery.