FRANKFURT, Germany — Greece officially completes its bailout program on Monday, after eight years of cutbacks enforced in return for massive loans and following an economic collapse on the scale of the Great Depression.
The exit is a welcome milestone. But it offers little assurance that the 19-country euro currency union has left behind its problems with debt. The huge debt pile in Greece and an even bigger one in Italy will remain a lurking financial threat to Europe that could take a generation to defuse.
Europe’s debt problems have repeatedly raised fears over the past decade of a break-up in the euro, a worst-case scenario that would cause severe economic damage in the region and shake world financial markets and trade.
In Greece, successive governments had borrowed heavily for three decades to fund generous spending on pensions and jobs given to political supporters, while tolerating widespread tax evasion and covering up budget shortfalls. All that blew up mightily in October 2009, when Greece admitted its budget deficit was much bigger than previously reported. Shocked investors no longer would risk loaning Greece money at affordable rates, forcing the government to turn to rescue loans from the other eurozone countries and the International Monetary Fund.
The loans came with tough conditions: closing deficits, which led to aggressive tax increases and spending cuts; and a raft of reforms aimed at improving tax collection and the business climate in general. The economy, hit hard by spending cuts, shrank by a quarter.
All told, Greece now owes total debt of 322 billion euros ($366 billion), or over 180 percent of annual economic output. Of that, 256.6 billion euros is owed to eurozone creditors and 32.1 billion to the International Monetary Fund. In 2012, about 107 billion euros in debt was lopped off by inflicting losses on private bondholders.
Monday is the day the third and last bailout program expires, meaning no more money is available. Greece will remain subject to quarterly visits by technical experts to make sure it is meeting agreed targets for public finances until the last bailout loan is repaid, in 2060.
The other eurozone countries gave Greece enough cash to cover 22 months of financing needs and significantly eased its debt repayment terms. Greece needs to pass the quarterly reviews to activate that debt relief. But Greece will get no new reform requirements.
Some experts say that the best way to help Greece would be for eurozone countries to write off a part of the loans altogether. But governments have balked at that. The bailouts were unpopular, particularly in Germany, and loan forgiveness would be a tough sell for leaders such German Chancellor Angela Merkel.
The IMF and prominent economists say that if part of Greece’s loans are not written off, its debt loan will eventually start to rise out of control again.
