In familiar after-midnight fashion, European leaders early Tuesday announced a plan to stabilize Greece’s spiraling debt and trumpeted a “new paradigm” in the country’s struggle to stay in the euro zone.
As analysts parsed the details, however, it seemed less a breakthrough than more of the same: a political compromise that will keep the country afloat for the time being but leave the ultimate success of its rescue program in doubt and threaten to cost the euro region and possibly the world even more in the long run.
The International Monetary Fund, a party to the talks and a key creditor of Greece, said afterward that it will withhold any further bailout loans to the country until it becomes clear whether parts of the new program work as expected — a sign of the tensions among Greece’s creditors that have made a durable solution so difficult to reach. Along with the IMF, Greece’s bailout is overseen by the European Central Bank and a committee of Greece’s euro-zone neighbors — a triumvirate whose priorities have often been in conflict.
“We need to understand exactly what is delivered” under some of the more complex elements of the program, particularly a proposed Greek debt buyback, before committing to any further lending, IMF Managing Director Christine Lagarde said at an early-morning news conference in Brussels after the announcement of the agreement.
Three years since Greece’s debt troubles became apparent, the economic turmoil that it helped spawn remains a drag on the world economy, and the costs to Europe have far outstripped the country’s roughly $250 billion in annual economic output. Although the euro zone’s problems involve much more than just Greece’s heavy borrowing, the region’s inability to move quickly and convincingly to help the Mediterranean nation three years ago made some of those other problems apparent, upped the costs of fixing them, and arguably laid the seeds for a much broader crisis.
The European Central Bank has since pumped about $1.2 trillion into stabilizing European banks with long-term loans and purchased an additional $240 billion in bonds of troubled nations. Euro-zone countries have had to commit $700 billion to a rescue fund that has helped underwrite bailouts in Greece, Ireland and Portugal and of the Spanish banking system.
The onset of a new recession has cost the region perhaps $1 trillion in lost output, according to IMF estimates. As of November, the German central bank was owed about $850 billion by the central banks of other euro nations.
Even as European officials hailed the latest plan for Greece, others warned of the continued drag Europe poses to the world and criticized euro-zone leaders for their inability to fix the country at the epicenter of the crisis. While intent on keeping Greece in the euro zone, leaders such as Germany’s Angela Merkel have also been loath to give the country too much too fast — for fear that it would be politically damaging at home and create a “moral hazard” by seeming to reward the country’s mismanagement.