EURO ZONE finance ministers have set a March 16th deadline for Greece to show that it can meet its commitment to reduce its budget deficit by four percentage points in GDP terms this year. By next month, if the Greek government is not then on schedule to meet that target, euro-zone ministers will press Greece to take additional budget measures. In the meantime, and as a contingency, the Greek authorities have been asked to prepare more deficit reduction proposals, involving further spending cuts and some higher taxes, before next month’s deadline expires.
Last week, the leaders of the euro-zone offered conditional support to Greece, provided its government does everything necessary to reduce its deficit. This week, the euro-zone finance ministers have further intensified pressure on Greece to deliver on its promises. But, as yet, they have not revealed how any EU-led bailout might work.
The onus is first on Greece to show that it can help itself. Only then would euro-zone ministers be willing to help it overcome any difficulties that arise in the deficit reduction process.
Greece has not sought a bailout. And the Greek government remains confident that it can meet its budget targets. That confidence, however, is not shared. Greece’s major problem, given its record, remains one of credibility. Greece lied about its finances in order to join the euro. And, as the country’s newly elected government has admitted, its national economic statistics have been falsified.
Such a dismal record greatly undermines the confidence of the other European Union member states and the financial markets in the pledges and promises made by the Greek government, under the duress of a possible default on its debt. This year Greece needs to raise €53 billion of debt, which is equivalent to one-fifth of its national output. It represents a huge challenge.
Euro zone ministers have now, wisely, bought time – four weeks – to test fully the resolve of the Greek government. That delay may prolong financial uncertainty. However, it also places Greece under maximum pressure to address a problem largely of its own making; one to which the Greek government will now have to contribute a large part of the solution.
It can best do so by meeting its commitment to achieve the budget targets it has set and that it has agreed with the European Commission and the 15 other euro-zone members.