By: Jose M. de Areilza & Jose Ignacio Torreblanca- 26 June 2012 Published on European Council on Foreign Relations Website

Extract

At the end of July Greece had completed only about 100 out of more than 300 reform benchmark set by international lenders. Greece has legislated plenty of reforms but failed to implement many of them. The stakes are higher than ever. Greece will not receive any more rescue funding until the medium-term package is in place. Without that money, the Greek government will run out of cash to pay pensions and public-sector salaries in September, if not sooner.

Europe's harsh austerity programs have pushed depressed economies even deeper into depression. Growth has stagnated. Debt is out of control. In vulnerable economies like Spain, interest rates are veering toward usury. Governments are bailing out banks. And Greece has imploded both politically and economically with citizens now emptying their bank account. Because investors look at the state of a nation's economy when assessing its ability to repay debt, austerity programs haven't even worked as a way to reduce borrowing costs.

France's new President is calling for a European rethink to foster growth strategies. But he will face two monumental challenges. The first is to solve France's overwhelming debt and fiscal crisis- in the eyes of many economists, the most serious in Europe. Currently, France's public deficit is 5.2% of GDP and public debt is 85.8% of GDP. France is still able to borrow 10 year money at below 3%, compared to 1.6% for Germany, around 2% for the UK and 4.7% for deeply troubled Spain.