EC Verdict on Greece Wednesday

Currency in Crisis

The European Commission will give its verdict on Greece's new fiscal initiatives tomorrow. There are two main issues. The first is the credibility of Greece's macro-economic statistics. Some reports suggest that the new commission established to ensure accuracy of Greece's statistics has covered another 40 bln euro shortfall. To be sure though the reports do not appear to be officially confirmed (yet?). The second issue is whether Greece should take more measures.

We suspect that the EC will be mostly supportive for Greece's efforts, but will chastise it and call more steps. But this seems like a largely scripted drama and by calling for additional measures, the EC positions itself well, while being supportive and encouraging. For its part, contacts suggest, Greece is prepared to announce another initiative. This choreographic dance may increase Greece and the EC's credibility.

The next major event in this saga will be the EU finance ministers review. They are likely to be more critical than the EC. The EC does not have the power of the purse. The finance ministers do. Anything that looks like a bail out for Greece, or others in the euro-zone--will be a hard sell domestically.

Between the EC and the finance ministers, the market and policy makers are going to see the other side of the equation. Strike activity is planned for Feb 10-11. There are domestic limits on the extent, pace, and distribution of the drive for fiscal austerity.