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Greek Drama Will Continue

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Unread 02.09.12, 02:11 PM
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Greek Drama Will Continue

On 02.09.12 12:00 PM posted by Terry Miller

The deal reportedly reached Thursday to release another 130 billion euro bailout for Greece is just one more temporary fix. Greece will get enough new cash to avoid the messy default it faced a few weeks hence, and the pain of adjustment will be shared by private bondholders, who are expected to write off about half the value of their Greek bonds; the European Central Bank, which this week agreed to forgo potential profits on Greek bonds it bought at a discount; and the Greek public, who will see benefits (primarily pensions) reduced by 3 billion euros.

With a general strike still scheduled for Friday and Saturday, it is unclear whether even this modest deal will hold up. What is clear, however, is that it does nothing to address the long-term problems facing Greece, which can be fixed only through much more difficult reforms to liberalize the labor market, promote investment, and reduce corruption, all while maintaining political stability. Those problems were reflected vividly in this year’s Index of Economic Freedom, where Greece suffered the largest decline in score of any country in the world.

Such reforms are a daunting task, and there are few signs that conditions are ripe for the fundamental societal dialogue that is required—a dialogue in which all parties will be faced with the need to significantly and painfully adjust lifestyles and traditional ways of doing business.

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