Who will hear Greece’s cry?

European Commission President Jose Manuel Barroso was in Athens on Thursday. It was the first visit to Greece by the head of any of the troika elements since the country agreed its first bailout in May 2010. Greece’s isolation within Europe could not be highlighted or summed up in a better way.

Barroso brought kind words of support and messages about growth, which the Greek government will treat as a useful display of solidarity in these difficult and lonely times. But the EC chief’s visit was eclipsed by the presence of the top troika officials in Athens.

Greece’s immediate fate rests in the hands of these three men. The words this trio includes in their review of the Greek program, due by the beginning of September, is likely to determine whether eurozone leaders and the IMF board approve the release of more loan installments.

For Greece, ECB = End Close, Beware

The European Central Bank’s decision on Friday to stop accepting Greek government bonds as collateral was not the first such move made by Frankfurt but there was something distinctly ominous about the timing and implications of its choice.

“The ECB will assess their potential eligibility following the conclusion of the currently ongoing review, by the European Commission in liaison with the ECB and the IMF, of the progress made by Greece under the second adjustment program,” the central bank said.

The ECB has twice before this year refused Greek banks the ability to use government bonds to draw much-needed liquidity. The first was after the bond restructuring, or PSI, and the other was before the start of the bank recapitalization process. In both cases, Greek banks were excluded and had to rely on Emergency Liquidity Assistance (ELA) to gain access to funds. They have reportedly drawn more than 60 billion euros this way.

A tragic common fate looms for Greece, Portugal and Spain

Even from a Greek perspective, the austerity measures the Spanish government adopted last week were alarming. The cuts to pensions and unemployment benefits, the rises in VAT and the rest triggered the shocking realization that yet another country is about to walk the same treacherous road of abrupt fiscal adjustment that Greece has been stumbling along for the last 2.5 years. But it was the sight of riot police clashing with protesting miners and their supporters in Madrid that really drove the chilling reality home. Whereas Greece has been suffering a painful but largely lonely death, Spain seems poised to commit a spectacular mass suicide. The reasons that led the two countries to this point are not exactly the same but it is now clear that the miserable realities they face are absolutely identical.

While Greece’s rotten public finances have pushed its banking system and the country itself to the edge of collapse, it is Spain’s overexposed and undercapitalized financial sector that is threatening to raise public debt to dangerous levels and destabilize the country. Ultimately, taxpayers in both countries are suffering. Spain’s decision to adopt a new round of austerity measures, though, makes it more urgent than ever to answer the question of whether this suffering is part of an effective strategy to exit the crisis.

Straight lines are useful sometimes

If the new Greek government is attempting to bamboozle the country’s lenders into submission with its tactical meandering, who knows, it might have struck on a great idea. If it’s trying to convince the Greek people it’s capable of dealing with the economic crisis, then performing more sudden turns than Fernando Alonso going through the Monaco chicanes is just not going to cut it.

Within a week, the three parties who campaigned on a pre-election platform of renegotiation, renegotiation, renegotiation suddenly decided that the bailout terms are fine as they are for now. Then, they changed their minds again and decided it would be best to bring up the issue of changes to the loan deal in talks with the troika later this month.

Prime Minister Antonis Samaras and Finance Minister Yannis Stournaras caused consternation last week when they suggested there would be no Greek bid to renegotiate the bailout, without making it clear whether this meant abandoning efforts or simply putting them off. There is logic to the strategy of putting aside the renegotiation issue in the sense that the coalition government can draw a line under what has happened in the past, express its commitment to meeting fiscal and reform targets and allow a little time for trust with its lenders to be restored and goodwill credits that could be subsequently cashed in to be amassed.

Final thoughts on Cameron

Illustration by Manos Symeonakis

I have received a number of comments (positive and negative) regarding my response to David Cameron’s suggestion of a block on Greek migrants in the case of a euro exit. Thanks to all those who read the piece and took the time to comment, even if they disagreed.

A number of issues have been raised in these comments and I thought it might be useful to group the common themes in a Q&A by way of a response. This will be my last comment on the issue as I feel there is no use in dragging it out. It’s clear Cameron was saying something for domestic consumption and, as opposed to it as I am, I think dwelling on it simply breeds further division at a time we’re in desperate need for unity.

The UK is within its rights to block immigrants from another EU country
I am not an expert on EU law but from what I have read, the UK does not have the right to unilaterally block the entry of citizens from another EU member state. The free movement of people is one of the EU’s “Four Freedoms”. Article 46 of the Treaty for the Functioning of the European Union prohibits the restriction to this free movement on the basis of nationality. Article 224 of the EU treaty requires any member state to consult with the others if it intends to prevent the functioning of the common market, even “in the event of serious internal disturbance affecting the maintenance of law and order, in the event of war or serious international tension constituting a threat of war.”