Could an investment in Greek energy save world stock markets?

I think we can all agree that Greece has been a bit of a problem lately. I think even the Greeks might admit that at this point. And, it’s not that we don’t love the Greeks. We do, but we don’t much love their economy right now. To put it mildly: Their economy is in a bad, bay way. All of Europe is trying to fix it. Now, whether or not Greece will accept that European Union (EU) “we’ll-pull-your-bacon-out-of-the-fire” bill full of “haircuts” and bailouts is a matter for a people’s referendum at this point. And the idea that, perhaps, the Greek people might just let their bacon sizzle, thank you, is enough to send the international stock markets into a depression this week.

Now, you may be like me and marvel that a country with about the same amount of citizens as the New York City metro area could singlehandedly bring international economies to a grinding halt. But, the fact remains that it obviously can or the stock market insanity of the last week would have been---well, a little less insane.

It traces like this: Greece is in the European Union. If they fall out or are kicked out---and there really is no clean exit plan either way---it could destabilize the EU and pretty much the continent of Europe. The makes other continents, like Asia and our own, decidedly fidgety. So, like people tossing heavy luggage off a sinking boat to get a few more minutes above water, stocks start to get chunked over the side to lighten the load.

We may not like it, but it seems someone, anyone, has to save Greece to save all our economic necks. So, is there a solution?

The International Energy Agency (IEA) thinks there may be a rescue plan for the Greek economy hidden inside the country’s own energy market.

In late October, IEA released a report on Greece stating that allowing competition and ratcheting down the government’s role in energy could help the problematic country with economic recovery. (In fact, all EU member states recently adopted the third Internal Energy Market Directives which basically says “you will deregulate”---or ‘liberalize,’ to use the European term.)

“Reforming Greece’s electricity and gas markets is a policy imperative that should add efficiency and dynamism to the Greek economy. This, in turn, should help generate self-sustained employment and prosperity for the country,” IEA Executive Director Maria van der Hoeven said as she presented the study titled Energy Policies of IEA Countries – Greece 2011.

The IEA had a few recommendations for Greece to make the electricity market, in particular, more attractive. First and foremost is more competition. (State-run Public Power Corporation [PPC] pretty much still dominates both the wholesale and retail markets in the country, along with owning all the transmission and distribution assets and having a huge stake in the operator for the transmission market.) The IEA wants a “strong and independent regulator” in place to pry PPC away from some of these monopoly positions, which is understandable. The only problem is: Who’s in place to do that? Pretty much no one.

One area that the IEA points to with great potential is Greece’s renewable arena, especially wind and solar. IEA gave Greece brownie points for a renewable sector that already offers increased feed-in tariffs and simplified licensing. The agency even applauded Greece’s “determined” effort to fulfill the country’s renewable potential. Again, like the increase in competition, this may be a product of overall EU policy since there’s a 2020 renewable energy target in place for all member countries. Still, in nice to see some positive Greek news.

There was a caveat in all the renewable happy talk, however---namely that it “will be crucial that framework conditions to investment remain stable.”

That was pretty much the gist of the entire report on Greek energy: Keep things stable so people will give you money cuz you need it. The report's summary states:

Investments and competition are needed for ensuring the financial efficiency of the electricity sector. Investments by independent power producers in both renewable and flexible conventional generation will be necessary in the transformation to a low-carbon, green electricity market. Competition can also drive prices down and help mitigate the costs of necessary network investments and renewable energy supports.

Well, that may be the kicker. It’s that old “you have to spend money to make money” adage. Greece needs an influx of cash in order to get their power markets in order so that those, in turn, can help with the teetering Greek economy. But, who will start the ball rolling? Everybody here wants someone to invest in Greece to save all our collective bacon, but no one really wants to be the investor and put personal funds where our hopes are---not with financial reforms and not with energy market investments.

At least, not today.

So, yes, investments in energy infrastructure could help the Greek economy---but the cash isn't going to come right now, nor will it come quickly enough to save our stock market bacon. Infrastructure and market building could be a way to ensure Greek stability in the future, but it's certainly not a cure for the current and immediate crisis.

If that EU bill passes the Greek referendum, however, we may be humming a different tune. There is infrastructure and energy reform tied up into that package of haircuts and loans. But, first, the Greek people have to tell us just how much hair they are willing to trim or whether every lock will remain in place. Then we'll talk about energy market reform.

UPDATE: Thurs. Nov. 3, 2011. Greek prime minister has declared "no need" for a referendum, but has not officially called off the planned vote.