European Commission President Jean-Claude Juncker offered some sage advice recently to the Greek electorate, which faces a crucial decision on Sunday about how to deal with its crushing debt: "You shouldn't commit suicide because you're afraid of dying."
That captures the rock-and-hard-place situation confronting Greeks as their government defaults on a $1.7-billion payment owed to the International Monetary Fund. With banks temporarily limiting withdrawals and global markets slipping, Greeks will go to the polls next weekend to choose between endorsing the higher taxes and pension cuts their creditors have sought, or demanding a better deal that may never materialize. The first option threatens to drag down a Greek economy that is already suffering from shrinking demand and an unemployment rate more than twice as high as the rest of Europe's (and four times as high as ours). But the second, favored by the ruling leftist Syriza party, could force Greece to abandon the euro, which economists say would cause even more pain in the near term by driving the country into a deeper recession.
European officials have already bailed out Greece twice, in 2010 and 2012, writing off some debt and extending more loans while insisting that the country shrink its public payrolls and raise its taxes. In retrospect, it's hard to argue that either of those interventions struck the right balance between relief and reform. As badly as the Greek government needed to trim its spending, weed out corruption and crack down on tax evaders, the country also needed to grow its economy. It has not done so. And that task will only be complicated by the creditors' demands for higher tax rates on a broad variety of goods and services, along with reduced subsidies and pension payments. Meanwhile, Greek voters have become increasingly hostile to their lenders' demands, tossing out two successive ruling coalitions that supported the austerity efforts.
The stakes for the rest of the world aren't as high as they were five years ago, when the possibility of a Greek failure threatened to set off a cascade of woe across Europe that could have swamped the nascent economic recoveries in the United States and elsewhere. That's due in large measure to the growth outside Greece since then, the reforms enacted by other struggling European nations, and the work by the IMF and other multinational credit agencies to absorb much of Greece's debt from banks and investors.
Nevertheless, for Greece's sake, it would be good to see the country and its creditors unite on a new, pro-growth path out of the debt crisis. The country needs more debt relief than creditors are offering today, but dropping the euro would be a torturous way to obtain it.