The economy in Europe may be the world’s largest but, since a 2009 financial crisis, it has also been among the weakest. Within the 17-nation eurozone, where the crisis began, Greece has been the most feeble, requiring the biggest bailout and the most difficult reforms. But that picture began to change last Thursday. Athens was once again able to borrow money on global financial markets.
Investors flocked to buy $4.2 billion of government bonds. The sale marks some hope that Greece will implement new reform laws, especially those aimed at cutting the number of public workers. The government of Prime Minister Antonis Samaras has already improved the pension system and collection of property taxes. It now reports the first budget surplus in a decade. And in 2014, the economy is expected to grow after shrinking in previous years.
As the world’s second most indebted country after Japan, Greece is hardly out of the woods. It still needs to prove a long-term commitment to fiscal austerity. For decades, Greek governments have lived beyond the country’s means, compounded by widespread tax evasion and a misreporting of fiscal health. Greeks had fallen into the very behavior that one of their ancient own, Plato, had warned about. The Athens sage worried that citizens in a democracy would “live from day to day, indulging the pleasure of the moment” as their elected leaders gave them benefits to be paid by future generations.
Now, however, Greece’s progress has been enough for the chief architect of the eurozone’s recovery, German Chancellor Angela Merkel, to pay a visit to the country Friday. In a sort of a short victory lap, the leader of Europe’s strongest economy praised Greeks for making it through a difficult first phase. The country, she said, now “harbors boundless possibilities still to be exploited.” She announced $139 million in loans to finance small businesses in Greece.
Ms. Merkel noted the Greeks’ personal sacrifices – 27 percent unemployment – but suggested that every country in the eurozone had to go through belt-tightening. “This path could only have been taken because there was solidarity in Europe,” she said.
Indeed, reform governments in Italy, Spain, Portugal, and France are taking on vested interests to cut costs and spur economic growth. Without such progress, Europe will not be able to meet the new security challenge posed by a newly aggressive Russia and also help Ukraine repair its weak democracy and economy.
Paying off the biggest debts in Europe’s most troubled economies will take years. Much depends on whether voters continue to elect leaders who trim spending and help small businesses grow.
Greece, whose previous lack of budget discipline sparked the eurozone crisis, has so far honored pledges to change its ways. With last week’s bond sale, it turned an important corner, not just for itself but for the European Union’s grand experiment to join 28 nations in common interests.