Goodbye uncertainty, hello uncertainty

For Greece, the underlying theme of this crisis has been swapping one set of uncertainties for another. In fact, sometimes the uncertainties have been exactly the same, simply repackaged and rebranded. From George Papaconstantinou’s “loaded gun on the table,” to the first bailout in May 2010, from the mid-term fiscal plan in the summer of 2011 to the October 27 haircut agreement last year, from the PSI and second bailout early this year to the European assurances ahead of this summer’s elections: each development has promised stability, continued membership of the euro and better days ahead; each has crumbled into an empire of dust.

Now, hopes are being pinned to the Brussels debt deal agreed in the early hours of Tuesday morning. The immense relief at an agreement being reached is both understandable and justified. The prospect of the eurozone and International Monetary Fund failing to find any common ground on how to make Greek debt sustainable would have led to potentially devastating economic and existential implications for the single currency area and Greece. However, as this relief subsides, it becomes more evident that this deal takes a stab at providing a definitive solution to Greece’s debt problem but falls short, leaving the sword of Damocles dangling over the country. Even if the debt reduction program goes according to plan – and there are doubts whether it will, especially due to questions over the bond buyback scheme – Greece will still have to contend with a debt of 124 percent of GDP in 2020. It is also doubtful whether enough has been done to remove the niggling doubts about Greece’s future in the minds of investors, who are so necessary to helping change the course of the Greek economy. JP Morgan referred to the Brussels pact as a moment of “creative ambiguity.”

Advertisement

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.

Growth in Greece? Barroso and Papademos say: “Yes, we can!”

Given that the Greek economy contracted by 7 percent of gross domestic product last year and is on course to complete this year one of the sharpest peak-to-trough drops seen in the developed world, the idea of growth in Greece almost seems like a bad joke. Yet growth is the new buzz word in Brussels. Twelve EU states recently signed a letter demanding a greater emphasis be placed on it, analysts are talking about it, European Parliament President Martin Schulz came to Athens to talk about it and politicians are trying to find ways to generate it. Growth is very much the new black, or at least this year’s austerity.

It was in this vein that a meeting between European Commission President Jose Manuel Barroso and Greek Prime Minister Lucas Papademos took place in the Belgian capital this week. Although growth is the word on everybody’s lips, the talk of boosting economies and creating jobs in the EU remains rather vague. Tuesday’s talks between Papademos and Barroso did not produce a specific conclusion but they had a much greater focus than we have been accustomed to.

Europe’s fiscal pact: The final irony?

Illustration by Manos Symeonakis

Last Friday, December 9 — the day when 26 of the European Union’s 27 leaders agreed on a “fiscal compact” designed to save the euro and place the bloc on a sounder economic footing — marked exactly 20 years since Germany and France presided over a similar meeting that led to the drafting of the Maastricht Treaty, which became the cornerstone of the single currency.

Among the euro entry conditions agreed in 1991, a country’s public debt would have to be limited to 60 percent of gross domestic product and its deficit to 3 percent of GDP. The first countries to breach the deficit rule were France and Germany in 2003 but they voted to let each other off, thereby undermining the rules that they had been instrumental in drawing up. So, there is more than a hint of irony in the fact that two decades on, France and Germany are again at the forefront of pushing for strict budget discipline, this time as a way of keeping the euro from falling apart.