February 17, 2012
Think back a few weeks to the last European Summit. By all accounts the idea from Angela Merkel that there should be some sort of oversight by Europe in Greece on how they spend bailout money and restructure their public finances was not viewed well. It was anti-democratic. And, to a certain extent, it was. Fast forward to the last few days and the conference call between eurozone finance ministers and clearly that barrier has been removed.
Three countries (Finland, Germany and the Netherlands) are asking for more letters of assurance from Greek political parties about exactly how they will implement changes after an election. Jean-Claude Junker has apparently insisted that there be some form of permanent oversight on behalf of the troika in Greece and there are suggestions that an escrow account could be used. On top of all that, Wolfgang Schauble has suggested that the elections could simply be postponed!
Democracy be damned.
Needless to say the Greek politicians are not taking to this well, but their opinions seem to be a very long way down the list of important factors these days.
If all of that wasn’t bad enough – and it is! – earlier in the week, Wolfgang Munchau explained in his FT column why he thinks that any new deal can only last for between three and six months at the most until Greek financial troubles are centre stage once more. He suggested that Greece and Portugal be allowed to default inside the eurozone.
Reading between the lines, I think we can see that the eurozone finance ministers do not like the sound of that. The barriers are clearly coming up and the hurdles for Greece to clear in order to access this next tranche of money are already very high. The likes of Antonis Samaras signing his letter of assurance and then expressing caveats does not exactly help the Greek case.
This week has also seen the removal of another potential saviour. The Chinese have passed on the opportunity to buy their way into the affections of European political leaders and will not be “investing” in Greek or European debt in the coming days.
Back in May 2011 I offered my thoughts on why Greece would exit the eurozone (Who Will Benefit The Most When Greece Exits The Eurozone?). As unappealing a prospect as that was, we now seem to be just a few days away.
With the days counting down, the number of working days available to pass agreements through national parliaments and then implement financing are slipping through Greek fingers. While the debt needs to be rolled over by the 20th March, it will clearly need some time and there must now be a strong possibility that even if everything is agreed, there just won’t be enough time to implement it. If that is the case, it will become clear in the coming week whether Greece will default or not.
If that happens – which I fear it will – this mess is about to get much worse.financialguy