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A New Greek Test for Europe

PRINCETON – Over the last year, it has been easy to lose sight of the Greek debt crisis. Brimming with official funds, Greece was apparently on the mend. Though privatization plans lagged, the Greeks won high marks for doubling down on fiscal austerity. In Europe’s summer of quiet triumphalism, ever-lower expectations were easy to beat.

But Greece is set to test Europe again, with a vengeance.

Greece’s crisis was spectacularly outsize. After it was revealed that successive governments had misled their way to mammoth fiscal deficits and macroeconomic imbalances, Greece lost access to international bond markets. Since 2010, the country has been dependent on unprecedentedly large official bailout funds. But, because Greece’s creditors – the International Monetary Fund and European governments – misread the challenges facing the country, the rescue merely delayed the inevitable sovereign default and caused the Greek economy to contract sharply, magnifying the pain.

The hope was that the Greeks would ultimately bear their own burden. That was never realistic. The Greek crisis was always destined to spill across national borders – the question was who would share the cost.