The Coming Greek Writeoff The EU will never get its money back.

Monday's agreement to continue lending money to the Greek government was the easy part for Europe. The EU and IMF haven't spent three years and more than €200 billion just to cut the country adrift now.
The hard part will be getting paid back.
German Finance Minister Wolfgang Schäuble and IMF Managing Director Christine Lagarde have sometimes hailed Athens's "achievements," such as they are. Yet Greece's debt-to-GDP ratio stood at 157% of GDP at the end of last year, even after a restructuring that drastically reduced the value of its privately held sovereign debt. The budget deficit in 2012 was 10% of GDP. And that's on top of a 26.8% jobless rate, five years of shrinking GDP, and further anticipated shrinking of 4.4% this year.

WSJ Europe editorial page editor Brian Carney on why Greece will never repay the EU. Photos: Getty Images

All this underscores what is slowly becoming clear even in Brussels and Frankfurt: Greece will never repay the money it's been lent to "save" it. The current debate over whether Greece has done enough by way of reform, tax hikes and spending cuts to have earned the next tranche of bailout funds is largely beside the point. If Greece is cut loose, or walks away, its euro-zone creditors will lose their money. The Greeks and
the Germans are surely both aware of this.
They're also aware that Greece's external debt position is far worse than when the bailouts began—when its debt stood at a mere 129% of GDP—and that any talk of debt sustainability in Greece has become a joke.
Angela Merkel said at the outset that one of her goals was to make a bailout so onerous that no one else would want one. Mission accomplished: No one would wish Greece's fate on themselves, and its experience has made a bailout seem a far less attractive option for other euro-zone countries.
Yet there is a view in northern Europe that without this continual pressure, Athens would fall back into its bad old ways, and needed reforms would never get done.
In fact, reform in Athens has been grudging and scant, despite the supposed pressure. Yet the continuing uncertainty that surrounds every successive bailout review, and the constant (if improbable) threat that Athens's creditors will walk away if their conditions aren't met, can't be good for Greece's private economy. Nor has the management of the Greek economy by Berlin, Brussels and Frankfurt produced an economic renaissance. It has, however, exacerbated the dysfunction and xenophobia of Greek politics.

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Christine Lagarde and Wolfgang Schäuble

For Greece, the end of this rescue can't come soon enough. And the end may have to begin with an acknowledgment that loaning Greece the equivalent of 100% of its GDP to address its excessive debt problems was never going to work out as intended.
Writing off the loans to Greece would be politically difficult—one reason that Angela Merkel doesn't even want to discuss the matter until after September's elections in Germany. It would raise questions about equal treatment of countries like Ireland, which is facing a crushing EU debt burden of its own. And Greece is responsible for having gotten itself into a mess in the first place.
At the same time, Greece and its euro-zone partners share responsibility for the economically disastrous outcome of the bailout. Greece alone should not have to bear the cost of what has become very much a jointly owned mistake. It's time to think about writing off a good deal of its publicly owned debt, just as its private-sector creditors were restructured last year.
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