One very last chance?

Greece was told tonight three things: one, they have to come up with a detailed and implementable financial reform programme; two, the European Commission has already prepared a contingency plan in case Greece leaves the euro zone; and third, their new policy reform proposal has to be ready for a careful analysis by the Euro group by Thursday, in view of the EU extraordinary summit called for Sunday, 12 July.

All in all, this sounds like the final leg of a very confusing process. A deadline.

The major risk, besides the one related to missing the deadline, is related to a possible split within the EU. Some countries might go one way and others adopt a different direction. That has to be avoided at any cost.

As we have to prevent any decision that takes flexibility beyond the reasonable enactment of the rules. The rules are essential for the survival of the union.

Puerto Rico´s money problems

Today we should look elsewhere. To the US, for instance as we get the news that Puerto Rico is also broke. The public debt is around USD 72 billion and the territory’s government is in no position to honour it. Default is around the corner. But it looks manageable as debt represents only 70% of nominal GDP. In any case, it will end up by causing some losses for those who have placed money in public bonds. That´s what they mean by “manageable”: the State borrows and with time the private citizens get a serious haircut. 

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 has to move fast and show results

The Greek government has lost the last month trying to convince the European leaders to accept the merits of its approach to crisis management. In the current situation, a month is a long period of time for the Greeks. It is even longer when you achieve very little. It is hell, when you have empty pockets.

They should have listened to the advice coming from the key EU capitals: no programme implementation, no money. Such advice was repeated in Brussels last night, when a side mini-summit brought together the Greek prime minister, Angela Merkel, François Hollande and a couple of other senior people, Greece was once more invited to cooperate with the rest of the UE. Money was promised. It should be released when the Greeks start moving along the reform path.

Listening today to the Greek Prime Minister I got the impression he has not yet realised that time is running out. Money is getting very thin in the government´s drawers. And the political support they had in Europe is evaporating fast. It would be better for his government and his people to show they can implement the agreed reforms. The sooner they do it the better for them and for Europe´s cohesiveness. 

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. 

Portugal´s financial image has improved

Portugal´s international financial image got a boost today. The government managed to sell 5-year sovereign debt paper for a total amount of 3,5 billion euros at a very favourable rate: 4,657%.

The point is now to be able to attract the foreign investors’ interest to put money into the real economy. The Portuguese entrepreneurs have been doing well and exports have increased during 2013. But that´s is not enough. The country needs major injections of capital into the productive sectors. And that can only happen if the govern manages to capitalise on the image of the country and show Portugal as a safe investment destination. 

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?