A blind alley

The Greek crisis has become a blind alley for the euro-zone institutions. To overcome a potentially catastrophic situation, given that Greece urgently needs a second rescue plan (it won't be able to access the capital markets until 2012, and only has liquidity until 2011), German Finance Minister Wolfgang Schäuble has suggested a prolongation of Greek bonds for seven years. The suggestion has prompted institutional debate. Brussels and the European Central Bank (ECB) are only in favor of an extension if the holders of the debt accept it voluntarily, while Berlin maintains that the creditors are obliged to collaborate.

The markets reacted with a rise in the differential of Portugal and Ireland while the ratings agencies are predicting huge sales of bonds from both countries, caused by the fear that they will be unable to stick to agreed cutbacks, as is Greece's case.

The reality is that Greece, the euro-zone countries and the ECB have no options left. The bailout plans are a failure for reasons that have been repeatedly exposed: they impose restrictive economic policies, which impede growth; they involve fixed timeframes to return to budgetary stability; and they force the rescued countries to pay back at rates close to those of the market for the injections of liquidity that they receive. What's more, they provoke political conflicts of a certain virulence, given that the citizens refuse to accept cutbacks in basic services. That was why it was urgent - and has been since the end of 2010 - that these conditions were modified; an urgency that Germany and France have refused to acknowledge.

In the Greek case, the situation is so serious that the solutions are limited to a deduction from the principal of the debt (no less than 146 billion euros, a large part of which is in the hands of European bankers, mainly German, who suffered the consequences in the Eurostoxx on Wednesday), or more time to repay. According to the interpretation of the creditors, the first option would be the equivalent of a default; the second is the lesser of two evils. It would avoid Europe feeling obliged to inject more money into Greece (something that would please Germany) and would move away from the risk of a deduction, given that deferment would involve a bonus.

But it also has its risks. The creditors will decide that bailout plans don't work and will push the price of financing up for all of the countries that orbit the grey financial zone of Europe. That is practically all of them, with the exception of Germany, the Netherlands, France and perhaps Finland. The proof is there: the euro-zone governments have to admit that the rescue plans must be restructured, and that the management of the financial crisis, ostensibly steered by France and Germany, has been appalling. And the worst thing is that this blind alley has been built for the sake of not losing votes in Lower Saxony and Schleswig-Holstein.