NEW YORK (TheStreet) -- Greece will never be able to pay all it owes, and the sooner its principal creditors -- the European Central Bank, the European Union and the International Monetary Fund -- face reality, the better for everyone.
The Troika is demanding more austerity -- cuts in government spending, higher taxes and labor market reforms -- to release another tranche of bailout funds. Without it, Greece can't pay €1.54 billion due to the IMF on June 30.
Withdrawals from Greek banks would accelerate further, and Athens would have to impose limits on private withdrawals and on the euros that investors could take out of the country.
In the panic, a broader default on Greek debt would likely follow.
A disorderly collapse of Greek finances would do few involved or global markets much good, but it is foolish to think that more austerity and labor market reforms could fix Greece.
Thanks to austerity imposed since 2010, Athens has accomplished a primary national budget surplus. Spending, net of interest payments, is about 1% of gross domestic product, and private-sector wages have fallen some 25%.
Contrary to the predictions of IMF Managing Director Christine Lagarde and German Chancellor Angela Merkel, those haven't rekindled growth. GDP is down 25%, and national debt has soared to 180% from 130% of GDP.
Servicing that debt would require a primary surplus of almost 6% of GDP -- assuming creditors would accept a paltry 3% on bonds -- and send Greece into a death spiral.
The required additional spending cuts and tax increases, applying conservative macroeconomic assumptions, would shrink the economy by another 6%. That would impel even more spending cuts, tax increases and economic downsizing.
The Greek government owes €131 billion, with the Troika holding in one form or another about €100 billion. Only forgiving half or likely more of that debt offers any hope of stabilizing Greece, but politics and simple ignorance stand in the way.