Greece: calling a spade a spade

Today´s prevailing position on Greece´s fate, in the European political and financial circles that have power, was rather clear: it´s time to call a spade a spade.

This basically means, as I see it, that those leading circles have come to the conclusion that the Greek situation has reached a decisive point. And the decision is to let Greece go its own way. It makes no sense to advocate for a solution that the other side does not accept.

I tend to agree. Default is painful but it is not the end of the road. Argentina and other countries have gone through that experience. Even California did. Default can actually be the beginning of a new cycle.

On the markets side, it looks as if the default possibility is now perceived as inevitable but with a manageable impact.

In the end, those who will be seriously affected are the poor people in the streets and villages of Greece. Unfortunately it´s always like that.

Greece is now against a tough rock

Greece´s financial situation is now reaching a breaking point. We might have a surprise in the coming week or so as it is abundantly clear that the public coffers are more or less dry. The State´s engine is now running on fumes, no longer on real fuel. The chances of agreement with its European creditors have become pretty remote. They still exist, it is true. But they seem very unlikely. 

If there is an agreement it will be in response to the surprise I anticipate, to a major default crisis, a precipitated reaction to tears and shouts. Drama first, spur-of-the-moment repairs afterwards.

Greece´s very delicate position

Greece´s future is at play. One should be very clear about it. The new leadership will have to be very strategic in their negotiations with the key European actors. These actors have time and money and are in no rush to achieve an agreement. And they do not want to take any measure or agree on anything that might be perceived as a precedent, as a Pandora box.

The same cannot be said of the Greek side. They have little time and little money. They cannot engage in a very long process. Results will have to be achieved soon. And that puts them in a much weaker position. It is, in many ways, an almost impossible position. 

Draghi´s measures should have a positive impact

I fully support the measures taken today by the European Central Bank president Mario Draghi. It´s far too early to talk about their impact, even less about the results. But they are bold decisions. They are a very serious attempt to revive the EU economies, to facilitate access to productive credit and also put a stop to the strengthening of the euro currency. The only problem is that the financial markets are very volatile, they have their own logic, and, in many cases, they are only interested in the short term. And they move trillions of resources on a daily basis. However, there is money out there that is looking for a more predicable economic environment and that is ready to invest long term. Let´s see if they get additional incentives to invest on productive and job generating activities now that Draghi has adopted a more proactive approach. 

On Greece: what should we conclude?

On Greece, from today's Eurointelligence daily report:

Confidential troika report reveals significant delays in tax collection

Greece missed key revenue targets by a wide margin last year, triggering concern over whether the government is fully committed to cracking down on tax evasion and graft, the FT quotes a confidential troika report leaked to the Greek press. The collection of overdue tax raised only €1.1bn in 2012, compared with a target of €2bn, while unpaid tax increased by 10% to €55bn, equivalent to almost 30% of national output. Two years after the launch of broad-ranging tax reforms, Athens each year still collects less than 10% of total assessed taxes on personal income and corporate profits. Thousands of Greek company owners and self-employed professionals routinely contest their assessments through the courts waiting for the finance ministry to grant tax amnesty settling for a tax bill cut by at least 30%.  The official Greek translation of the report, dated January 31, was accessible on Thursday on the websites of several Athens newspapers.

Riding on the Italian elections

Some opinion makers here in Brussels and in some other European capitals are taking advantage of the Italian election results to openly express their dislike for the German political elite. It is amazing to see important people coming out of hiding and placing the blame on the Germans for the anti-EU feelings some voters are expressing left and right. 

Today I got a mail from the Executive Director of a leading Think Tank that keeps its doors open because of generous funding received from the European Commission. The man was calling my attention to an interview that a French TV had broadcast early in the morning. In his opinion, the interviewee – a prominent Parisian  economist – had been able to explain that all this popular opposition to the EU had gained strength because the German government had imposed austerity all over the place in Europe.

I watched the interview and was not convinced. Then I read a few media pieces here and there attacking austerity. It is now very fashionable as a theme. I looked for alternative suggestions but found no credible answer to the question. The only avenue that made some sense was about a different policy approach to public financing by the European Central Bank (ECB). The Bank should be more forthcoming with resources. But then one key question remained unanswered: how to get the necessary consensus among the member states about the ECB change of policy?