The European Union Attempts a Controlled Burn in Greece:
Greece faces a period of consequential events in the two months directly in front of us. Immediately, there is the highly uncertain results of reduction in debt owed to private sector creditors, the success of which is critical for Greece to obtain the funding from the European Union needed to avoid the much feared disorderly default. With such high stakes, you would imagine that European officials would signal a commitment to stand by Greece. This is not the case as EU officials have yet again delayed a decision to aid Greece in avoiding a default on a 14.5 billion euro bond payment on March 20th.
What may be underway is a sort of tactical retreat by the EU officials from the quagmire in Greece. We receive news updates every week of an agreement reached and more concessions in the form of austerity by the Greeks, only for EU officials, notably the Germans, to still express frustration at the Greeks. It appears to be a moving goal post, a goal post they never intend to let the Greeks reach.
For some in the EU, the calculation may be that Athens is lost. Revenue is sharply falling despite increased taxes and economic activity continues to plummet. While unemployment rises to dangerous levels, Greeks are withdrawing their cash from Greek banks in huge sums, leaving these banks dangerously close to collapsing if panic ensues as we near the March 20th date. If the economic numbers aren’t enough reason to call a retreat, the politics are turning against the austerity program by the IMF and European Union. The anti austerity parties of the left would win a plurality in the April elections if current polling holds. Why would the EU commit billions of dollars in March if the Greek politicians they’re dealing with are toppled in April elections for ones whose explicit mandate from voters is to cease the austerity demanded from abroad?
The economics and politics of Greece make for an EU withdrawal to what they will hope are more defensible positions around Italy, Spain and Portugal. They hope the flood of money from the European Central Bank will douse burning Athenian embers from igniting the highly flammable fields of southern Europe. If this is their gamble, it is a risky gamble that may already be undermined by a deepening recession in Spain with missed deficit reduction targets and mounting social unrest with student strikes and mass protests by unions. Sarkozy claims Europe is turning the page on the crisis. He’ll be distraught when he turns the page to find it was but a Greek prologue.