It’s painful to watch the Greek ruling coalition unwittingly do the creditors’ work by wringing Greece dry of cash more aggressively than Pasok or New Democracy would have dared to.
In a desperate bid to buy more time to reach an agreement, the central government has borrowed pension cash and ordered local governments and universities to turn over their deposits to the central bank, ostensibly to serve as short-term borrowings to make IMF payments. But as anyone with an operating brain cell must recognize, if the Greek negotiators fail to come to terms with their creditors to unlock €7.2 billion in bailout funds, this begged and borrowed money will never be coming back. Greece will default in even more desperate straits than it would have otherwise.
As we’ve pointed out, the best strategy for the creditors was to keep Greece in the sweatbox. Syriza fails to realize that they are playing right into their counterparties hands.
Even the ruling coalition’s extreme measures appear to be buying only a few days of breathing room. The latest report is that Greece will be able to make a May 6 IMF payment, but the government’s body language is that it really, really, really needs the Eurogroup to approve the release of funds at its May 11 meeting, prior to the next IMF payment date of May 12.
But Eurogroup chief Jeoren Djisselbloem ruled that possibility out at the last Eurogroup meeting. And even if the Eurogroup ministers were to have a miraculous change of heart, the need for many of the member countries, particularly Germany, to obtain parliamentary approvals, separately would seem to make it impossible for Greece to get funds in time to make May 12 IMF payment.
Mind you, a default may not be quite as earthshaking as it seems. Rating agencies have indicated they would not lower Greece’s bond ratings to default levels even if Greece misses IMF and/or ECB payments. In theory, that gives the ECB the ability to keep the banking system life support of the ELA going, However, members of the ECB’s governing board have been bloodthirsty noises for some time. Indeed, the ECB has made a new threat, whether to increase the haircuts it makes on the collateral that Greek banks provide to obtain cash under the ELA. The ECB will make a decision on May 6. Given the central bank’s desire not to appear to be the one that decided to strike a fatal blow, it seems more likely that the ECB would instead find a way to tighten the choke chain further, say by issuing strict conditions that Greece would have to meet in order not to have the haircuts increase rather than raise them now and push Greece over the edge.
With this background, it’s hard to fathom the latest public pronouncements of Greek officials. For instance, consider this report from ekathimerini:
Greece is hoping that it will find enough common ground with its lenders to trigger an emergency Eurogroup before May 6, when the European Central Bank’s government board is due to meet next to decide on the provision of liquidity to Greek banks.
As we’ve written, there is no common ground on Syriza’s “red line” issues, such as pension and labor market “reforms” that were part of the old structural reform program that Syriza has made clear it wants to renounce. There’s no reason, given the Greek government’s obviously dire straits, for the Troika and Eurogroup to give an inch.
Even more peculiar and disconnected was the interview over the weekend by Yanis Varoufakis, in which he said that Greece would not need the bailout funds if the creditors would negotiate the debt. Huh? That is technically accurate but wildly remote from the realities on the ground. The creditors made clear months ago that Greece needed to come to a deal with them on structural reforms before they would entertain a discussion of debt reduction. To pretend otherwise at this juncture is a misdirection.
By contrast, Syriza member of Parliament Costas Lapavitsas, who is also a member of the party’s hard left wing, has a far more realistic assessment. In April [correction, March], he said that Syriza’s strategy had played itself out and had failed (emphasis original):
The Syriza strategy has been – and it remains – that a change in the political alignment of forces in Greece, in Europe, or generally, would act as a catalyst in the Eurozone. This strategy has now come to an end. The real question is how long it will be before people understand it.
I was always extremely skeptical of it. I always argued that it isn’t just about political alignment, there are institutional mechanisms and the logic of the monetary union. And those who believe that a simple change of politics is enough to transform this, were mistaken and I think this has been confirmed.
What we’ve seen is that the institutional framework of the Eurozone and the ideological machinery attached to it are not susceptible to arguments that come from electoral realignments. So the agreement of the 20th of February at the Eurogroup reflects that.
This is a terrific, if sobering interview, and I urge you to read it in full. Lapavitsas says that there is no middle way, meaning compromise, in the offing. Greece’s only choices are to submit to continued austerity or exit the Eurozone. Lapavitsas argues in favor of negotiating an orderly, managed exit, but he concedes that the government does not have a mandate for that option. He clearly believes the public could be persuaded to come around, but the runway appears to be too short for that to happen now.
As in the runup to World War I, accident, rigid timetables and miscommunication may well be what determine the outcome of these negotiations. Nevertheless, the more Syriza goes all in by extracting every Euro it can find to keep its creditors at bay, the more it commits itself to getting a deal done, no matter how terrible that deal is. If the new government had any thought of defaulting or trying to win an orderly exit, then it would have been much better served, as we’ve argued all along, to impose capital controls and conserve cash. In the wake of the crisis, mortgage borrowers in the US figured out that it was smarter to default with enough funds on hand to be able to put down a deposit on a rental and pay moving costs than to drain all their bank accounts in a futile effort to keep a house they were almost sure to lose, and then find them unable to contend with the consequences.
And even the quixotic effort to try to get the Troika and Eurogroup to relent has come at a high cost, independent of the raiding of any and every source of official funds. From the Guardian:
Following three months of fruitless talks to reach a cash-for-reform deal with creditors, public finances have never been worse. In an atmosphere of fear, the real economy has come to a grinding halt. Disquiet over whether prime minister Alexis Tsipras’s leftist-led coalition can keep up with state expenditure and meet debt repayment obligations – it must pay nearly €1bn to the IMF by 12 May – has added to the mood of mounting angst…
“We are not at the point of outright panic yet but people are clearly very worried,” said Mouriki, a sociologist. “Close to €30bn has been withdrawn by depositors and firms from bank accounts since December which is more that at the height of the crisis in mid 2012.”
But shades of panic have arrived and, indelibly, have begun to reveal themselves in other ways: from the government sequestering the funds of public bodies to help pay bills; to Greek borrowing costs soaring on fears of insolvency; to savers stuffing their freezers with cash and ever more parents encouraging their children to move abroad. “I have come round to accepting that my daughter’s generation is a lost generation,” lamented Panaghiota Mourtidou, sitting in the food pantry she helps run in central Athens. “At 30 there is no chance that she will have any of the certainties that we enjoyed but maybe my grandchildren will. That, now, is my great hope.”
The Greek government has remained hostage of its conflicted election promises: of negotiating an end to austerity while renouncing the possibility of leaving the Eurozone. While a happy ending was never in the cards, Syriza’s path is looking to be one of the worst it could have navigated. One can only hope the Greek people can endure the punishment the creditors seem determined to inflict upon them.