Greece’s Ordeal Is Far From Over

(The Bloomberg View) -- Greece reaches an important milestone today: After nearly nine years of crisis, brutal austerity and political turmoil, it's exiting what is supposed to be the last of three bailout programs. If only it weren't doing so with Europe's largest debt burden.

Europe's leaders are understandably eager to be done with an embarrassing episode. The debt crisis that began in 2010 highlighted not only Greece's financial mismanagement, but also how Germany, France and other core countries allowed their banks to enable it. Bailing out Greece was an act of political sleight of hand: It indirectly saved the banks, while putting the onus on the Greek people.

Miraculously, Greece survived. The federal budget is in surplus, and the economy is growing again after one of the deepest recessions ever. But it's also stuck with the bill: more than 240 billion euros in official debt, which together with private debt brings the government's total burden to more than 180 percent of gross domestic product.

European Union creditors insist that the debt is bearable. They have reduced interest payments and given Greece more time to pay, extending some maturities out as far as 2060. This, they estimate, should help the government get the debt down to about 100 percent of GDP by the year 2060 — still very high, but at least headed in the right direction. Here's roughly how that looks:

Unfortunately, the EU's projections involve extremely wishful thinking. For one, they assume an impossible level of austerity: Greece must run an average budget surplus (excluding interest payments) of 3.4 percent of GDP for a decade, then 2.2 percent until the year 2060 — something that no euro-area country with such a precarious economic history has ever done. Bringing those projections down to a merely improbable 2 percent and 1 percent, and using growth and interest-rate estimates from the International Monetary Fund, yields a very different picture:

Over the next several decades, even in an optimistic scenario, Greece will have to borrow hundreds of billions of euros from private investors to pay off its official creditors. If those investors think the government's debts are out of control, they're bound to pull back — and Europe's leaders will face yet another Greek crisis.

The obvious solution is for the EU to provide Greece with genuine debt relief. The sooner, the better.

Editorials are written by the Bloomberg View editorial board.

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