It should now be clear to even the most blinkered observer that the Greek economy is in desperate need of help. Unemployment is 16 per cent and rising. Even after a year of excruciating spending cuts, the budget deficit still exceeds 10 per cent of GDP. Residents don't pay taxes. The system of property registration is a mess. There is little confidence in the banks, and even less in the government and its policies.
Since the economy needs help, here's a novel idea: provide some. Now is the time for the EU to come forward with a Marshall Plan for Greece.
Rather than piling more loans on to the country's already unsustainable debt burden, the EU should offer a multi-year programme of foreign aid. The Greek government and donors would decide together the projects to be financed. These could include building new solar and wind power-generating facilities to make Greece a major energy exporter, and updating its ports to help make it a commercial hub for the eastern Mediterranean.
Foreign aid and expertise could be used to modernise the property registration and tax collection systems. Funds could be used for recapitalising the banks and retiring some debt. They could help to finance government support for the unemployed, the indigent and the elderly, who are among the principal victims of the financial crisis.
The EU should contemplate this option, because, for starters, it bears more than a little responsibility for Greece's plight. It offered membership to a country with deep structural problems. It then accepted Greece into its monetary union with full knowledge that the nation's fiscal accounts were not worth the paper they were written on. And it looked the other way when French and German banks recklessly enabled the Greek government's profligacy.
The current strategy, which amounts to trying to extract blood from a stone, is not working. There are limits to how quickly a country can reform. A society can bear only so much pain and suffering before it loses faith in its political system. EU leaders need to acknowledge this reality before it's too late.
And, finally, history suggests that a Marshall Plan for Greece might actually work.
Recall the plight of the European countries that received aid from the US after the Second World War. They had massive debts. Their budgets were deep in deficit. They exported little. Property rights were uncertain. Support for governments grappling with these problems was extremely fragile.
The Marshall Plan, by financing strategic investments, helped the recipients to sharply increase their exports. Aid-financed reconstruction turned Rotterdam into a commercial hub for northern Europe. US aid underwrote the imports of coal and investments in hydroelectric power needed to get industry running again. And, in some cases, such as France, US funds were used to extinguish part of the public debt.
These projects were neither dictated by the donor nor chosen by the recipient but decided in collaboration. The recipient, moreover, had to put up matching funds for each and every project.
A further condition for receiving aid was that the government had to follow through with macroeconomic stabilisation. But this was now politically feasible, because aid topped up the public coffers, reducing the depth of the necessary cuts and the associated pain and suffering. Support for the centrist governments undertaking these reforms was correspondingly stronger.
Solidifying political support for policies of stabilisation and reform was probably the Marshall Plan's single most important contribution. With that support in place, the recipient countries could do the rest. Europe could get back on its feet.
The cynics among us - that is to say, economists - will worry about the precedent set by a Marshall Plan for Greece. They will warn that other EU countries such as Portugal will refuse to undertake more reform, retrenchment and repayment unless they receive similar largesse.
Economists are trained to worry about this problem, known as moral hazard. But the kind of social chaos and international disrepute that Greece has suffered are considerable disincentives to go down this path. And while there is moral hazard risk, there is also meltdown risk. There is the danger of a complete economic, social and political meltdown in Greece. If that meltdown is not averted, it could take down the rest of Europe.
A Marshall Plan for Greece would require European leaders to do the unprecedented: they would have to lead. That, of course, is what the US did after the Second World War. Europeans might usefully look back 60 years, to a time when their own countries, perched on the brink of a similar collapse, received the help they needed to recover - help that has put them in a position to do something similar for Greece today.
Barry Eichengreen is a professor of economics and political science at the University of California, Berkeley
* Project Syndicate