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. 

Syriza´s victory opens an interesting time in the EU

Syriza has won a clear victory. Greece´s choice is clear. But Greece is not alone in Europe of today. They will have to negotiate with the other partners within the Union. It´s going to be, I believe, a very interesting negotiation. It will say quite a bit about the future of the EU. 

Portugal on the street

Large crowds marched today in the key cities and towns of Portugal against the austerity measures the government is implementing. The key feature of these manifestations was their peaceful nature. People have shown, once more, that they can be on the streets and behave responsibly.

Many of the protesters could be defined as middle class families that are going through a process of impoverishment. For many of them and for many years their living standards were based on a fiction: that the country could afford a level of public expenditures that was well beyond the means of the economy. With the international financial crisis this fiction could no longer be sustained. The state could no longer borrow in the international markets at low rates of interest. To be able to finance the public sector and adjust spending to the real possibilities of the economy over a short period of time, the state had to look for funds coming from the IMF, the ECB and the European Commission. These monies came with strings attached, as expected. And that hurts. It hurts even further because the government has realised – but cannot explain it properly and clearly, for reasons that are beyond my understanding – that the long term sustainability of public expenditures calls for further cuts, particularly if one takes into account the fragility of the economy and the very low rate of productive investment that has been recorded so far.

In a country where the state was the true engine of the economy – unfortunately the private sector had not been able during the last two decades to take off and expand; it remained too dependent of state projects and orders and largely linked to political patronage – if public expenditure goes significantly down most of the economy tends to collapse.

The point is to get as many investments from outside as possible. My hope is that today’s popular civism be perceived by those potentially interested in investing in Portugal as an encouragement to do so.