The absence of a Greek debt deal is finally starting to wear on the markets with European stock indices selling off broadly today.
Meanwhile, the European Union is holding its seventeenth summit (that's right, seventeenth) in two years in Brussels today.In a sign of how Brussels has been chasing its tail, the terms of a Greek bailout aren't even on the agenda.
Instead, leaders from 26 of the 27 EU member states plan to finalize a new fiscal pact -- an agreement pushed hard by Germany rto require all signatories to adhere to strict fiscal policy guidelines.
Under the new agreement, each signatory must introduce legal limits on budget deficits -- a debt brake, so to speak. It makes you wonder what the point of the Maastricht Treaty that created the EU and the single currency was for in the first place. After all, that treaty limited EU government deficits to 3% of GDP and debt to GDP ratios to 60% -- and it was signed 20 years ago. Luxembourg Prime Minister Jean Asselborn was brutal in his assessment of German Chancellor Angela Merkel's efforts, declaring them a "waste of time and energy."
The markets seemed to agree this morning.
After all, a Greek bailout must be completed before a €14.4 billion bond comes due March 20 or Greece would become the first developed economy to default in nearly 60 years. A full-blown hard default by Greece would spark another round of panic in European government-bond markets. It would also rapidly escalate and spread the crisis to the other Club Med countries, including Spain and Italy.
Meanwhile, the rhetoric between Athens and Berlin became more antagonistic over the weekend. Late last week, the Germans circulated a proposal that the Greek problem child should be subject to adult supervision through the appointment of an EU budget tsar. Greek Finance Minister Evangelos Venizelos went apoplectic, indignant that the Germans dare imply that Greece would fudge its numbers. He told the Financial Times that the proposal to create a European Union budget commissioner with the power to veto Greek taxation and spending decisions "ignores some key historical lessons."
In fact, the German proposal does precisely the opposite. After all, the "historical lesson" is that the Greek government has fudged its numbers from day one of its entry into the eurozone. In fact, it fudged the numbers that got Greece into the eurozone in the first place.
Still, the whole idea of a German-appointed budget tsar overseeing the Greek finance minister in Athens is another go-stand-in-the-corner moment from the adults in Europe. Contrast that with the good kid, Ireland, which is well on the road to redemption having issued last week its first international bond since September 2010.
The EU and the International Monetary Fund want Greece to be a good boy like Ireland. They have already presented the Greek government with a 10-page list of "prior actions" Athens must take before the new bailout is approved. According to the Financial Times, the measures include cutting 150,000 public sector jobs within three years. It's unclear whether Greek members of parliament will have to give up their free cars -- perks their German counterparts never enjoyed.
The elephant in the room is that the Greeks aren't the Germans, just like the ant isn't the grasshopper. And forget about the instant gratification Greeks crave after years of austerity, even if the Greek bad boy does as he's told. Greece's debt-to-GDP ratio would only be cut to 120% by 2020.
The real problem is no one knows how to show Greece the exit door out of the euro, and that's a tougher nut to crack for the EU than to simply rehash 20-year-old treaties that have been ignored.
I surveyed the German press this morning on this topic, and perhaps the center-left daily Süddeutsche Zeitung summed it up best (translated from the German):
"People are increasingly wondering: 'If the Greeks don't want to help themselves, why should we?' Some in Athens are wondering the same thing. They believe that a terrible end is better than terror without end, that it's better to stop taking on more credit that the country won't be able to pay back anyway, and that the severe austerity (measures) must end. But the problem is that nobody knows what would happen were Greece to actually leave the eurozone. There is no precedent to look at, no emergency plan and no lifeboats that could be depended on."