Tsipras Fighting Two Front War as Revolt Within Syriza Intensifies, Forcing IMF Payment Delay, Cancellation of Negotiating Session

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The odds of a deal between Greece and its creditors getting done fell as Greek prime minister Alex Tsipras cancelled a Friday session to continue negotiations with the creditors and backed out of Greece’s promise to make its scheduled €300 million loan payment to the IMF. What made this reversal surprising was that Tsipras had reassured Lagarde on Thursday morning. The government reversed itself hours later, invoking a rarely-used rule that allows borrowers to bundle payments and make them in a lump sum at the end of a month.

While some may try contending that this was a clever move meant to show the Greek unhappiness with the creditors’ proposal, as Lambert said, “Most Machiavellis are a lot smoother than that.” Greece was not canceling the payment out of inability to pay per se, although it would have had to raid yet another cache intended for the Greek people, that of an EU infrastructure fund (although Ambrose Evans-Pritchard, who is close to Greek sources, reports that the use of the IMF provision was baked in, since Greece would not have been able to make its next IMF payment on June 12). But the sudden move, combined with Tsipras canceling his next session with Juncker and other creditor representatives, and heading to Athens to speak at an emergency session of Parliament (6 PM local time today, 11 AM EDT) has the look of needing to quell a party revolt. The Left Forum of Syriza was opposed to making further IMF payments and is pumping for a default and Grexit (see a translation of the proposal it made at a Central Committee meeting last month here).

Consider this account from Reuters:

As details of the confidential lenders’ proposal trickled out, members of Tsipras’ government and his Syriza party denounced the conditions as unacceptable.

The backlash highlighted the risk of a revolt in Syriza if the prime minister decides he has to accept a deal, not least because a big majority of Greeks want to stay in the euro zone.

“(Juncker) took on the dirty work and conveyed the most vulgar, most murderous, toughest plan when everyone hoped that the deal was closing,” Alexis Mitropoulos, a deputy parliament speaker and senior official within Syriza told Mega TV. “And that at a time when we were finally moving towards an agreement we all want because we rule out a rift leading to tragedy.”

Avgi, the Syriza party newspaper headlined Thursday’s edition: “A continuation of austerity? No, thanks!”.

While, as Lambert puts it, this is an overly dynamic situation, the initial reaction from Merkel, who is the one person who might be able to wrest concessions from the hardliners, was not encouraging. Tsipras spoke to her and Francois Hollande Thursday evening. She had said earlier in the day, “we’re still far from reaching a conclusion,” which does not signal much optimism.

A Bloomberg story says that the European creditors expect Greece to respond to the creditors’ proposal by June 8, and to have a deal in place by June 14. That looks wildly out of synch with conditions on the ground. Tsipras effectively rejected the proposal in the phone call to Merkel and Hollande, although the government may lodge a more formal turndown.

Other factors to bear in mind:

The Left Platform so far is succeeding in advancing its plan to have Greece default. We’ve pointed out repeatedly that the hard left wing of Syriza would check Tsipras in making concessions to the creditors. Even after issuing his Le Monde op-ed last week, which would already seem to constrain him, the Left Platform seems to be outraged that Tsipras is even talking to the creditors at all about their proposal, even if it is just a matter of form.

Snap elections appear unlikely to offer any resolution and could throw an even bigger spanner in the works. There’s some patter in the financial press that snap elections could give Tsipras a mandate, as if that would increase the odds of getting a deal done. That line of thinking is bizarre. Tsipras isn’t in favor of a Grexit (his position on a default seems to be he will do it only if he fells Greece has been forced into it) and he’s publicly kept up his position that he is not crossing any red lines. He can’t retreat from that even if he were inclined to. Having voters revalidate Tsipras’ increasingly irreconcilable promises, of rejecting the structural reforms and staying in the Eurozone, does not make them more viable (note that while a default does not necessarily mean a Grexit, it does put Greece on a path of hard-to-control events that could make a Grexit inevitable).

to be blunt about it, Greek voters overestimate how much their view matter. As Philip Stevens of the Financial Times put it:

Another miscalculation (or was it hubris?) was to assume that other European states should be bound by the choice made by Greek voters. Mr Tsipras was given a mandate to seek what he said was a better deal. No one should have expected that the voters of Madrid and Lisbon or Dublin and Berlin would feel an obligation to agree. Greece’s democratic choice does not trump those of other eurozone states.

As the Socialist Worker concluded before the latest intra-party row:

Although the Left Platform’s proposal was defeated by a 95-to-75 vote, the strong showing by the left has put enormous pressure on Prime Minister Alexis Tsipras. If he bows to the latest attacks from Europe, he risks splitting the party. And if he were to follow the increasingly shrill calls from the establishment media and attempt to expel the left from SYRIZA, he would likewise detonate a crisis.

The outcome would likely be either new elections or the expansion of SYRIZA’s governing coalition to include pro-austerity parties such as Potami.

Moreover, now that the Left Platform has put pressure on Tsipras, things could quickly move out of the Prime Minister’s control. For instance, if the Left Platform is not satisfied with Tsipras’ speech tonight, they may go into open rebellion and call for a vote of no confidence. The odds favor it failing. As the old political saying goes, when your enemy is drowning, throw him an anvil. New Democracy and Pasok would probably prefer that Syriza own fully whatever the outcome of the negotiations is, or at least be the clear lead actor. If the Left Platform threatens to leave Syriza to from a new party, the rest of Syriza would be forced to seek new coalition partners. Nevertheless, even facing a vote of no confidence would make it clear to the creditors that even if Tsipras stays in power, it becomes harder for him to pass any legislation that would come out of a deal, unless the creditors capitulate on structural reforms or popular opinion changes in Greece.

Greece is about to enter the creditor sweatbox. Despite all the conditions above seeming to argue that the creditors can’t push Greece around much, the cost of defiance is about to start rising rapidly. From ekathimerini:

Sources indicated that even if Greece were not to honor its repayments to the IMF this month, it would still have insufficient funds to pay salaries and pensions through June.

Issuing payment in scrip will almost certainly dent the ruling coalition’s popularity, particularly since Syriza’s base includes civil servants. Moreover, the Greek-sympathetic Ambrose Evans-Pritchard noted that Greece might have to impose capital controls as early as this weekend. Australia had already issued a travel advisory on Greece that “retail banking services throughout Greece may at times become very limited at short notice.”

The fear of imposition of capital controls will lead exporters to Greece to limit shipments and tighten up even more on payment terms. It’s also a negative for travel. In the 2010 and 2012 crises, berths in cruises that had Greek ports of call were virtually being given away. And this is the beginning of the tourist season, which is important for the economy overall and even more so for tax receipts. So this type of uncertainty could not be happening at a worse time.

An IMF default isn’t a bright white line, but nevertheless would set in motion a new chain of events. The situation would be so unprecedented that it isn’t clear what the decay path would be. But the ECB will come under increasing pressure to limit its exposures, which would force either a Cyprus-style depositor bail-in or a Grexit. Key points from a very good overview at the Telegraph:

…in the event of a delayed repayment, according to IMF protocol, Greece would be afforded a 30-day grace period, during which it would be urged to pay back the money as soon as possible, and before Ms Lagarde notifies her executive board of the late payment.

Following this hiatus, a technical default could be declared a month later, when “a complaint regarding the member’s overdue obligations is issued by the Managing Director to the Executive Board”….

Should no money be forthcoming however, the arrears process may well extend indefinitely.

Greece’s other creditor burden would also start piling up, with the government due to pay another €6.6bn to the European Central Bank in July and August.

Although the exact process is uncertain, falling into a protracted arrears procedure could have major consequences for continued financial assistance from Greece’s other creditors – the European Central Bank and European Commission…

“If Greece defaults to the IMF, then they are considered to be in default to the rest of the eurozone,” says Raoul Ruparel, head of economic research at Open Europe.

The terms of Greece’s existing bail-out programme stipulate that a default to the IMF would automatically constitute a default on the country’s European rescue loans.

As I parse this, the “delayed payment” refers to the bundling and delay till the end of June. And to add to the murkiness, even though this column says there is a 30 day grace period, finance minister Yanis Varoufakis asked for them in April, and Lagarde herself said Greece would not get one. So unless she reverses herself, if Greece does not reach a deal by the end of June, Lagarde would submit the complaint to the board a month later. It would become harder to deny that what has happened is a default as of then, despite it being formally called an arrears procedure.

The expiration of the bailout at the end of June is another constraint. In theory, the “bailout period” could be extended beyond its drop dead date of June 30. Given the nebulous nature of an IMF default, that would in theory allow everyone more negotiating runway. However, that would take the approval of all the Eurogroup members and for some, including Finland and Germany, that entails parliamentary approvals. A large number of countries, mainly the good austerity students like Latvia, Portugal, Spain, and Ireland, are even more hardline than Germany. Softening public opinion enough to get the votes through would require that the messaging were already underway. Merkel will not be able to decide what action to take until (at a minimum) after Tsipras’ speech and after she has conferred with Draghi, Hollande, Juncker, perhaps Djisselbloem, and Lagarde. Even then the creditors will have to decide what course of action to take, given that Greece seems committed to not budging. This snippet from a Reuters story, which came from the Greek side, was telling:

In a sign of accelerating efforts to bridge the remaining differences, Tsipras, Merkel and French President Francois Hollande spoke late on Thursday evening via conference call, according to a Greek government official.

Tsipras told the two leaders that the lenders’ proposal could not be a basis for a deal because it was not taking into account the progress made in talks in Brussels over the past months, the official said adding that there was optimism that a deal could be reached soon.

Given that the two sides have remained far apart, it sounds like a stretch to insinuate that the creditors were retreating from positions they’d taken in the talks. (It is completely fair to note that the primary surplus targets that the creditors put forward for 2016 and 2017 are insane, but it’s not clear that either side had previously put a hard figure on the table for those periods).

The creditors actually made a large concession:

In one concession, the lenders were offering to unlock 10.9 billion euros in unused bank bailout funds that would enable Greece to cover its financial needs through July and August, an amount that is more than the 7.2 billion euros left in the expiring bailout.

The Roshomon-like difference in views as to what has happened is also not going to help Merkel and Juncker sell an extension to the Eurogroup members, assuming Merkel decides to go down that path.

The ECB is likely to prefer a faster resolution if they can keep their hands clean. The ECB is very concerned about its ability to contain market reactions, and protracted negotiations work against that. The almost certain continuation and acceleration of the bank run will also make it impossible for the ECB to wait very long.

If I were the creditors, I’d start thinking very hard about what combination of sticks and carrots it can deploy to keep Greece from exiting the Eurozone in the case of a default, which is now looking hard for even Merkel to forestall. Stay tuned.

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  1. DDF

    I actually disagree with you. Tsipras strategy is risky but has worked so far and he might just get what he wants ie further substantial concessions from the troika. What he has done so far is to pre-commit credibly to his negotiating stance through Syriza central committee endorsement and through his Le Monde oped. That brought about the politicization of the negotiation he had been looking for: on Monday night Merkel basically told Lagarde to shut up and put up. Lagarde is the main stumbling block in this negotiation. She does not like being told what to do but she has her two main shareholders the U.S. and Germany telling her to concede. For Merkel, Greece is a minor matter, she is overall much more concerned about her European legacy than about the minutiae of the Greek pension system and she can afford the political cost of conceding. Going back to the IMF, It has never stood up to its powerful shareholders. Also the Greek credit is currently 30 pct of the IMF total. Tsipras’ turn around on payments has weakened further Lagarde credibility: she already gave in to Tsipras brinkmanship last month when, after Tsipras informed her he would not pay, miracle of miracles the IMF found a hitherto hidden pot of liquity that Greece could use. Tsipras next step is to get a further boost from his negotiating position by getting a strong endorsement from the parliament today. There is plenty is scope for miscalculation, for instance making Lagarde lose face is OK but Merkel is a nono, but so far this seems to work. It is Tsipras who is the game theory expert, not Varoof.

    1. Yves Smith Post author

      No, you misunderstand what went down between Merkel and Lagarde.

      The real fight is over structural reforms, which is what the IMF cares about. Merkel decisively backed Lagarde on that two weeks ago today and has not budged. The offer submitted early this week reaffirmed that.

      It was beyond the authority of the IMF to demand the other nations to reduce their debt. The IMF had made precisely the same point in 2012, and then had actually managed to persuade the creditor to promise to reduce debt, which they never did.

      So the IMF raising the issue again was for two reasons:

      1. To shift blame to the failure of the IMF program to the excessive debt loads, rather than the fact that the structural reforms (the IMF part of the program) made matters worse

      2. To have a trading chip to give up in negotiations so that they’d be able to hold the line on structural reforms.

      Lagarde won the cage match, not Merkel.

      And it was no “loss” for Greece to use the reserve account. It is permitted under IMF rules even if only rarely done and Greece is incurring interest charges on it. Greece is also required to replenish that account, so it is no free lunch. It’s another of the lengthening list of accounts payable, like the 1.1 billion euros and rising overdue pharmaceutical bills.

      1. Cugel

        Yves, the minute I read the the Greek counter-proposal it was obvious there was no chance for agreement. The proposal basically is a return to positions that the Troika have already rejected. And the political fallout from the Syriza left was quite inevitable.

        Tsipras is powerless to accept the impossible surplus targets, and the labor “reforms” seem merely imposed for ideological reasons, since the impact of those reforms is negligible in budgetary terms. They are just deliberately bitter medicine that the Greeks are supposed to swallow in order to show them who’s really running things, and that they cannot simply reject Austerity. But, that arrogance simply boxes Tsipras in ever further and makes it impossible for him to accept the program.

        I’ve been saying for months that Tsipras simply does not have the power to implement the Memorandum no matter what he may choose to do. The Greek people have not become more willing to accept endless Austerity since the support for PASOK collapsed.

        And adding “pro-austerity” parties like PASOK and Patami in a new coalition will accomplish nothing since none of the “pro-Austerity” parties have any significant political support. What such a coalition government would amount to is an rule by decree without popular support. What makes anybody think the Greek public would support Tsipras if he expelled the left for rejecting Austerity, and called for snap elections in a coalition with PASOK to implement the Memorandum? What makes anybody think that such a coalition government would be at all stable? It would be under endless assault from both the left and the far right and could only stagger from one crisis to another, with opponents attempting to field motions of no-confidence. Tsipras would become reviled and hated in Greece and what would he gain? Given the creditor inflexibility they are not going to give him anything to make implementing an agreement at all palatable to the Greek people.

        The Troika has refused to give Greece even face-saving window-dressing concessions. They are insisting on total surrender, and have already made up their minds that Grexit “will be contained.” So, the creditors are making it as difficult as possible for the government to accept the program.

        What it amounts to is that the Germans are angry at having their decisions and ideology called into question and have determined to crush Greece once and for all.

        There’s no time for snap elections to be held even if the EU would support them, which seems unlikely. The only hope for some positive outcome would be for the Obama administration to put intense pressure on Germany to make real concessions, which they have show little inclination to do.

        This statement from the White House Economic adviser is about the only thing I’ve seen that implies any criticism of the creditor position.

        White House economic adviser, Jason Furman, said a Greek default was a “potential accident” in waiting.

        “It would be a mistake to think it would be just contained to Greece,” he told the OECD conference, saying policy-makers had already been caught wrong-footed in recent years by contagion from the sub-prime debt crisis.

        Furman made his comments in response to news that Tsipras “has produced a plan of his own and said he intended to discuss this document in Brussels, calling on euro zone partners to show some ‘realism’ and urging a deal that would let Greece escape from ‘economic asphyxiation.’”

        I think it would take a LOT more than this mild shot across the bows to get the Germans to bend to reality. It would probably take a personal intervention by Obama going to visit Merkel and really leaning on her to do some real negotiating. I don’t see that happening, do you?

        1. Synoia

          What it amounts to is that the Germans are angry at having their decisions and ideology called into question and have determined to crush Greece once and for all.

          What a surprise. No history of this behavior.

          The problem is not Greece. The problem is, as always in Europe, a strong and unified Germany.

        2. Mr. G

          Tsiprias’ pandering to the left wing in his own party is nothing more than a shallowly canceled attempt to extract further compromise from the lenders. No one is fooled.

          Tsiprias should watch his political footing next week. Europe may just pull the rug for him on Wednesdays ECB call if he doesn’t start to show spine and courage against the entourage of ex-Union bosses and neoMarxists.

          He leads a country now. Not just a political party.

        3. Yves Smith Post author

          The ruling coalition had yet to deliver a full plan was reasonably detailed until the creditors said they were going to deliver one. Given that Merkel came down firmly on Lagarde’s side two weeks ago in her messaging (it got markedly less conciliatory to Greece, before she’d been deliberately equivocal), it was hardly a surprise that the document would stake out a firm (as in tough) position..

          Moreover, Greece HAS agreed to insane primary surplus targets. Both Greece and the creditors agree on a primary surplus of 3.5% in 2018. That’s crushing. They disagree about the intervening years, and even then, less than you’d think. The creditor target for 2015 is 1.0% and Greece’s offer is 0.6%.

          You’ve bought their rhetoric. The reality is another matter.

      2. Nathanael

        You STILL haven’t figured out that Greece holds all the cards and the Troika has nothing?

        This article and your own comment here makes it very clear. Yet you’ve continued to claim that Greece holds no cards. Please, read your own writing.

        The only thing holding Greece back is the delusion that they can stay in the same currency zone with Germany. They can’t, so forget that. Once you figure out that either Greece leaves the euro or Germany does, you realize that Greece holds *all the cards*. I’m still not sure how many of the people in power in Greece realize this, but the Left Platform certainly realizes it.

        The “cost of defiance” for Greece is nonexistent; it is a strictly positive move. For Germany, the “cost of defiance” is massive, and could include the collapse of the eurozone and Germany’s entire subsidized export empire.

  2. Kas Thomas

    A protracted arrears procedure is probably the least disruptive path to default and may have been chosen specifically on that basis.

    1. Nathanael

      Yep. If I were running the Greek government, I would also have chosen a protracted, drawn-out default process (while getting control of the agencies and government departments, which takes a *long time*).

  3. D. Galanis

    Tsipras”s rejection of the proposals was not so much a result of the pressure from the Left Platform. It was a result of the unreasonableness of the creditors proposals/demands.

    1. Yves Smith Post author

      The post never says his rejection of the proposals was due to the pressure of the Left Plaftorm,

      It in fact (in a mild way) expresses perplexedness as to why the Left Platform felt the need to have a hissy fit since Tsipras had lashed himself to the mast with his Le Monde op ed and had also effectively rejected the creditor proposal. They forced Tsipras to abandon his plan to continue talks and run home and have an emergency session with Parliament instead. Recalll Tsirpas was to present his updated plan to Juncker et al. today. The Left Platform wants to stymie the negotiation process entirely, which is consistent with favoring a default and Grexit. They are apparently angry that Tsipras is talking to the lenders at all.

      Now it may be that the bone of contention was solely the IMF payment. But Tsipras having to run home to deal with a party uprising does not enhance his stature with the creditors.

      1. D. Galanis

        Well don’t forget the leaking [to a German newspaper] of the 47 page Greek proposals that contains some measures that are really hard to swallow and not only for the left platform.

        Btw Greek media were frantically trying to have a look at the Greek proposals and it was really impossible.

      2. FREDDO

        Surely, the Left Platform’s attempts to stymie negotiations is strengthening Tsipras’ hand by making it clear there are “irrational” forces that he will have to mollify. For that reason, Tspiras is happy to have the creditors think he is hostage to the Left Platform.

        1. Yves Smith Post author

          One can argue that it weakens him a great deal. Tsipras’ coalition has a thin majority. Not being in control of your own party is often a precursor to a vote of no confidence. That would actually suit the Left Platform just fine, since having new elections would mean that the creditors have no one who can make commitments till the elections take place and a new coalition is formed. That would pretty much assure a default unless the creditors did heroics and increases the odds of a Grexit, which the Left Platform wants tool.

          The big obstacle to a vote of no confidence is that the next step that the Left Platform leaves and forms its own party. Not clear how well the rest of Syriza does, but let’s guess it gets at least 20% of the vote. That means a coalition government again. But who would ally with the old Syriza? Plus I can’t imagine Pasok, which might be the #2 party, would want to be in charge right now. Best to let Syriza fully own how this plays out and pick up the pieces if it ends badly. So my guess is for entirely cynical reasons that Pasok would not go against Syriza in a vote of no confidence, if things go that far.

          1. Cugel

            Yves, it’s much worse than you’re pointing out here. Remember that PASOK is out of power because they tried to implement the Memorandum, and their entire position is “see! We told you it was impossible to get the concessions Syriza promised! Now support us in putting the hair-shirt back on.” That is not going to win them any support.

            How can any of these parties compete politically with rejectionist parties on the far left and far right? By an “appeal to reason” and rule by emergency decree like Heinrich Bruning? We all know how that turned out.

            No, the only thing Tsipras can do is keep “negotiating” and remaking his proposals and asking for “flexibility” until the Troika forces him into default, then he can blame the creditors for insisting on the impossible. Any other path will simply hurl him from power in rather short order.

            1. Yves Smith Post author

              I agree that Tsipras 100% that Tsipras can’t move unless he seeks votes from centrist parties, most importantly New Democracy, which would be a massive loss of face and credibility for him. He’d probably lose a lot of the non-Left Platform members of Syriza too unless he had a way to justify it (as in 3 months from now, conditions are even more desperate and the public opinion shows a willingness to capitulate, or the ECB threatens Greece with a deposit bail in if they don’t get bailout money, so Tsipras is faced with a Grexit or capitulation. I don’t think the odds are high that the ECB would play hardball that way, since even Tsipras could change his mind and go the Grexit route, but they used the same device to bring Ireland and Cyprus to heel).

              However, what the bloodier-minded members of the creditors want is for Syriza to lose popularity so that there is a government crisis, and ideally, new elections in which Syriza no longer dominates a ruling coalition. They what to prove that defying them is a losing proposition.

              Thus the fact that Syriza won’t be able to pay salaries and pensions this month in cash means the creditors are on the verge of seeing the public start paying higher economic costs for supporting Syriza. And if the fear of being in Greece when capital controls are imposed reduces the number of tourists who visit, that will also hurt.

              The question (and I really have no idea) is how well represented the bloody-minded are on the creditor side. And remember, any release of bailout funds or extension of the bailout needs to be approved by all members of the Eurogroup. If Merkel threw her weight behind a conciliation plan, she might be able to get everyone on board. But given the short timetable (till June 30) and the fact that this would be a reversal of her position and her recent messaging makes it hard to pull off. In many of the countries (particularly Latvia and Finland, but there are other hardliners) there isn’t domestic political support for giving Greece a break, particularly on pensions. That is a real hot button. The pols (even if they relented) would probably feel the need to sell voters on it, and again, the tight timetable works against that.

              1. Nathanael

                The bloody-minded creditors are delusional. Completely delusional.

                A government crisis where Syriza is tossed out will simply lead to an *even more* rejectionist right-wing government. We *know* this history, I can reel off lists and lists of countries where it’s worked out this way. The only way it wouldn’t work out this way is if Germany sent troops into Greece, and Germany doesn’t actually have any troops.

          2. vlade

            that may actually play into LP’s hand. If there’s an election, and no government can be formed for quite a while, default is assured, and probability of Grexit rises substantially – to the point that LP could actually campaign on that platform for the next early elections (presenting it as a choice of sovereignity vs. euro).

            1. Yves Smith Post author

              That is exactly what I am saying. The LP would want a vote of no confidence since the government won’t be able to make binding commitments when a new government is about to come in. Given where we are now v. the expiration of the bailout, that would assure default and greatly increases the odds of Grexit.

              But I think New Democracy (next most popular party) Pasok won’t want that. My guess is Pasok would much rather have Syriza own these negotiations. And ND and Pasok also don’t not want a default and most assuredly not a Grexit, so they separately want Syriza to be able to negotiate.

              1. Nathanael

                Remember, Grexit is *guaranteed*. Optimal currency area theory tells us that it’s guaranteed, sooner or later.

                The only way it could be avoided financially is massive transfer payments from Germany to Greece, and all the analysts of German politics say that won’t happen (short of a Russian invasion of Greece).

                The only other way it could be avoided is military invasion of Greece by the EU, which will happen when pigs fly.

                Start from the assumption that there will be a Grexit, and the only question is what path we take to get there.

              2. vlade

                Sorry, I wasn’t entirely clear – what I meant is that LP can like force elections, if they chose to do so (I doubt ND/Pasok would be willing to actively say “yes” in a no-confidence vote, but I don’t know what Greek system does with abstains..). If they do so, and then go out of Syriza, I don’t believe a gov’t can be formed, which puts stop to everything – and as you say, make default certain, Grexit very likely (depends on ECB, which is too hard to call).

                That would IMO force another early election, and I believe then platforms campaigning on Grexit would be able to go out and do it in full. Note that in some media (FT alphaville, Telegraph just to mentione a few UK ones) noises are being made of “Grexit may not be as bad for Greece as you think”. Which, after failed early election and a chaos of default with uncertainty of what’s going to happen would put Greece before a very stark and clear choice – continue with Creditors as is, or elect Grexit (default would have already happened, so..). So it would come down to a choice of a lesser evil for Greeks – so a fight between the devil you know and a hope (or a devil you don’t know).

  4. Jackrabbit

    Reports from The Guardian live blog (from 14 hours ago at this writing) show that Tsipras also believes that the Troika’s offer was insufficient:

    … Tsipras has also [sic] insisted that the creditors’ plan cannot be the basis for an acceptable deal. So he’s sticking to his guns, and his own, 47-page proposal.

    If Tsipras mostly agrees with his leftist colleagues, then its difficult to see their point of view as a party revolt.

    H o P

      1. Jackrabbit

        Tsipras’ proposal also contained a framework for debt restructuring (“Chapter C”), which states, in part:

        The above restructurings of Greece’s public debt, combined with the successful implementation of the agreed fiscal policy, are designed to create the appropriate conditions so that from 31/3/2016 or earlier, the refinancing of Greece’s public debt can be conducted through the markets…

        In short, Greece wants to be free from the stranglehold that the Troika has via the massive debt load.

        The Toika largely ignored this. And that was apparently another reason for anger about the Troika’s proposal (from comments on The Guardian Live Blog).

      2. Nathanael

        The Troika aren’t actually representing the interests of the stock market investors. This may surprise you. But the Troika types operate on ideology; they are not practical people.

    1. Yves Smith Post author

      You seem to be bringing a bias to your reading of the post. Nowhere does it say that Tsipras favored the creditors’s offer in any way. What it does say is the Left Platform constrains Tsipras ability to make concessions (as in even if he were willing to make them, he can’t).

      What I said, in perhaps too oblique a manner (the perils of starting a post at 6 AM) is that the Left Platform seems to be upset about the fact that Tsipras is negotiating with the creditors at all:

      Even after issuing his Le Monde op-ed last week, which would already seem to constrain him, the Left Platform seems to be outraged that Tsipras is even talking to the creditors at all about their proposal, even if it is just a matter of form.

      In other words:

      1. Tsipras can hardly back down from his op-ed, which was very hard line

      2. The Left Platform seems upset about the fact of the talks

      As I point out in an earlier comment, Tsipras was planning to present his updated plan today, but that got aborted by the need to run to Athens.

      We’ll see if my guess in 2. is correct when Tsipras deals with Parliament in a few hours.

      1. Jackrabbit

        The headline says that there is a “revolt” within Syriza. The fact that Tsipras agrees that the Troika’s offer gets overlooked. The notion that it is Greek radicals that are standing in the way of the deal makes the Troika look reasonable, doesn’t it?

        PS You don’t explain why the Left Platform is so much against the Troika’s proposal. According to “the party line” the Troika holds all the cards and Greece must cut a deal (Syriza is incompetent if it doesn’t bow to this “reality”). Yet, now we see movement by the Troika and Greece digging in her heels. What gives? IMO Greece wants to free themselves from debt peonage, not continue the farce (and this may be their last and only chance to do that). Also: much of what we hear from the Troika is BS – like their belief that any fallout from Greece is contained. Yes, in some ways it is, but not nearly as much as they claim.

        1. Yves Smith Post author

          This is a blog, not an encyclopedia. I don’t need to explain why the Left Platform is against the creditors’ proposals when Tsipras is already against them!

          There IS a revolt in Syriza. Why is Tsipras running home to have an emergency Parliament session with his own party, when he was about to present HIS proposal to the creditors?

          The Greeks are going to be debt peons regardless. A default does not mean you don’t have to pay back your obligations. Look at Argentina. They got a debt restructuring, as the creditors said they’d do after they got through the structural reforms. This fight is over the structural reforms. As we’ve written repeatedly, the creditors always expected they’d need to give Greece more breaks on the debt outstanding.

          The “concession” that the creditors offered is to enable Greece to continue with extend and pretend. The creditors think it’s big but the fact that they think it’s big proves how little they plan to give. As Michael Shedlock pointed out:

          Assuming there is a deal, the last paragraph likely explains why. Unlocking €10.9 billion is actually a very huge concession by the creditors.

          Of course, all it really does is give Greece enough money to pay them back. Add it to Greece’s debt burden that it will need to pay back.

          Even so, Greece will still need a third bailout package of at least €50 billion.

          Where Greece wants and needs concessions is on the “red line” issues, which are the structural reforms. There is no evidence that the creditors have budged.

          1. Jackrabbit

            It seems to me to be a matter of strategy only. Tsipras recognizes that the Troika’s proposal was not sufficient and was contemplating making a new proposal. The Left Platform wants to stick to what Tsipras proposed on Monday – which includes a proposed framework for debt restructuring.

            As much as you believe that the current negotiation is ONLY about agreeing to structural reforms – which is what the Troika insisted upon – the Greek left must understand that it is a trap: for Greece to describe how it will service the debt undercuts future negotiations on debt restructuring.

            The two-step negotiations forced by the Troika is a ‘Catch-22’ that is designed to keep Greece in the Troika’s stranglehold. Almost any agreement on ‘structural reforms’ only will continue the farce as, once agreed, there is little reason for meaningful debt restructuring (and by meaningful I mean more than creditor-friendly measures like extensions and interest recapitalizations).

            Negotiations would not have continue as far as they have – and Tsipras would not have included a framework for debt restructuring in his proposal – if Greek politicians only wanted to obtain the next bailout by producing a plan that the Troika would find acceptable. They had the opportunity to have their ticket punched (welcome to the club!) and rejected that (to their credit).

            Also, as they are now on the verge of default – the consequences of which is not fully known – it doesn’t seem unusual that Tsipras returns to Greece for talks and to address the Greek people. I feel that much is being made of Greek betrayal (wasn’t the bundling option offered by the IMF?) and radicals. It is a fluid situation and the Troika’s proposal is much more ‘revolting’ than the Left Platform.

            1. Jackrabbit

              After speech today, @GreekAnalyst tweets:

              #Greece Tsipras repeats the important red lines of the GR govt: low primary surpluses, debt restruct, protect of pensions & real salary

          2. Oregoncharles

            ” A default does not mean you don’t have to pay back your obligations.”

            So there are no sovereign nations anymore? You might be right.

            Longer term, though, we should be watching for torches-and-pitchforks from the debtor nations collectively. A REAL, collective default.

            “Sorry – no more blood in this turnip.”


    What is the point of the Greeks continuing to deal with the Troika? The creditors have shown that they are in the business of wringing blood from a stone. Even if, by a miracle, the the Greeks accept the creditors’ demands and the Greek economy “improved” the Troika will just use that as a basis for drawing more blood. In other words, the Greeks face decades of economic paralysis and financial slavery.
    Surely, the Greeks must now cut away the whole debt, take the consequences (which would be devastating of course) and start rebuilding. How could that be worse than continuing to deal with the Troika for decades to come?
    Sounds to me as if the hard left of Syriza are the only people talking sense.

    1. financial matters

      I would say it is definitely making things uncomfortable for the troika. Is the EC really powerless because it has no purse strings?

      1. financial matters

        I think the EC has some clout here:


        The Commission represents and upholds the interests of the EU as a whole. It oversees and implements EU policies by:

        1. proposing new laws to Parliament and the Council
        2. managing the EU’s budget and allocating funding
        3. enforcing EU law (together with the Court of Justice)
        4. representing the EU internationally, for example, by negotiating agreements between the EU and other countries.

        I thought Varoufakis made an interesting point of the usefulness of having Merkel give a unifying speech in a Greek city.


    2. Yves Smith Post author

      The can force a Grexit, which Syriza ex the Left Platform and the Greek public does not want, among other things. They have other implements of torture besides austerity, but using them involves costs and risks to the creditors too.

      1. Ned Ludd

        The majority of Syriza (58%) – not just the Left Platform –.“would prefer to return to the drachma rather than continue implementing Troika austerity measures.” I am not sure if people changed their minds or if Syriza’s 45% support results from an influx of eurosceptics and an outflow of europhiles.

        1. Yves Smith Post author

          Again, as I said, the majority of Syriza is not the majority of the public of Greece. 58% X 39% = 21%. There is also support among other parties, like ANEL, Syriza’s coalition partner, and no doubt the harder left parties.

          Tsipras campaigned on staying in the Eurozone. So did Varoufakis, who by virtue of being in a big district has more individual voters who voted for him than any other party member. Polls have shown consistent large majorities of the Greek public favoring staying in the Eurozone.

          1. Mr. G

            Yves is right. But…Tsiprias is not actually agreeing with the left of,his party. Instead he’s using their opinions as a proxy for average Greek sentiment as a bargaining chip with Europe. Sadly, this is a very dangerous game and no one in the Troika is fooled.

            Europe could school him on this mistake and take him strait to the end.

          2. Ned Ludd

            You asserted above that Syriza “does not want” Grexit. Syriza’s leaders may no longer reflect the will of the party’s members. Hence, all party members should be allowed to vote on the Left Platform’s call for a rupture in the negotiations.

    3. vteodorescu

      Well, yes, exactly!

      Does anyone really imagine that the Greek people will put up with the effects of 1 to 3.5 pc primary surpluses between now and 2018?

      Let alone longer horizons without hope of improvement ….

      Ultimately, it is hope that keeps people and nations going under hard conditions. The troika does not offer much of that…

      1. Yves Smith Post author

        I agree, the primary surplus targets are insane. But those can’t be enforced unless they are also reflected in the debt payment schedule (ie, Greece is required to retire debt, not just roll it). Basically, the nutty primary surplus targets guarantee another bailout negotiation in 2017-2018.

        But that isn’t the real fight. The fight is over the structural reforms. Unlike the budget stuff, which is squishier than it sounds (these are future targets), the primary surplus fight is about requiring Greece to make changes NOW, as in have them enshrined in legislation. There’s pretty much no fudge factor. And the red lines all involve structural reforms.

        1. Jackrabbit

          But that isn’t the real fight. The fight is over the structural reforms.

          You have repeated this many times but I don’t see how that can be true. Tsipras and others have talked many times about debt restructuring. Tsipras included a framework for debt restructuring in his proposal. And logically, as long as debt is restructured in a creditor-friendly fashion (interest recaps, extended maturities, etc.) Greece will remain in the Troika’s stranglehold.

          I know that I’m not the only one that believes that the whole exercise is more than just about reforms as excuse for a year or two of austerity-lite. Its about freeing Greece from the debt farce altogether.

          I have written about this many times (see above for more). I think your focus on structural reforms is why you get push-back. That is exactly what the Troika want to focus on and have forced Greece to abide. But Greece knows that to demonstrate a workable plan to service the debt is would undermine their request for REAL debt restructuring.

          In February, the Troika was willing to cut a deal that would’ve given Greece a break from austerity for 12-18 months. The Greek leadership could’ve gone along with politics as usual like so many political “leaders” before – but they didn’t.

          1. Freddo

            Yes, you make a very good point. The better the structural plan (from the Troika’s perspective), the less chance that they will be interested in debt restructuring. That’s quite a catch, that catch 22.

        2. HotFlash

          Do I understand correctly, that ‘structural reforms’ is code for ‘wealth transfers’?

          1. Jackrabbit

            “Structural reforms” would adjust the source of repayments to the creditors. For example, Greece could substitute sale of assets (aka “privitizations”) for “belt tightening” like civil servant layoffs. These adjustments, it is believed, could make it possible for the Greek economy to grow via more employment and/or investment.

            How much additional money could be raised from each reform is a matter of question. For example, the Troika might dispute that Greeks could substantially increase tax collection by targeting wealthy Greeks who have traditionally been able to escape most taxes. On the other hand increasees in VAT are more certain to be collected (but target ordinary people).

        3. freddo

          But what’s the point of kicking the can down the road and having another bail-out negotiation in 2017 – 2018? If the Greek economy does improve, the Troika will just say “thanks, we’ll have that, and bit more too if you don’t mind.” Greece will just continue to be a withered and starving financial milch-cow

      2. Yves Smith Post author

        Oh, BTW, the Greek plan agrees to the 3.5% primary surplus for 2018 target. The argument is over the targets in the intervening years.

        1. Jackrabbit

          The Greek plan also includes a framework for debt restructuring that envisions breaking out of the Troika’s stranglehold.

  6. docg

    The Zen koan has been described as a hot coal stuck in the throat that one can neither spit out nor swallow.

  7. Edna M.

    The left platform of Syriza wants it to default, exit from the eurozone, and return to the national currency. But more importantly, the majority of Syriza voters do as well. Tsipras himself seems to hold positions that are incompatible. My guess is that he has made promises to powerful players (the US, perhaps) not to leave the eurozone. Perhaps that was why the media did not demonize him as they do any leaders who interfere with big business. He did travel to the US to speak before influential circles before he became prime minister. In any case, he has been on the fence between what his party’s own voters want and what the elite want, and he has to finally decide which side he will take.

    1. D. Galanis

      As Yves noted repeatedly Tsipras and YV from the very beginning they made clear that they want to stay in EU and Eurozone. EU and Eurogroup made this almost impossible with their crazy demands.

      1. Tsigantes

        Tsipras and Varoufakis wanted to stay in the Eurozone and EU reforming both from within. This means that the Eurozone would have to back down on its proven policy failure and negotiate a new deal that leads to growth. Among other sensible things, so that creditor countries would have a hope of being paid back.

        The EU and Eurozone have refused to alter their failed policy and refused to admit it was a failure (unlike IMF). It has negotiated in bad faith and endless orchestrated anti-Syriza propaganda, while ECB acted outside of its mandate – acted politically – illegally cutting Greece off from the markets and denying it QE.

        Not only, and apparently not picked up on here, but after negotiating with the EU (with OECD and ILO participation) for 4 months and working up a document that both sides recently claim was progressing well, the Eurozone presented Syriza with its own final document which paid no heed to the EU/Syriza document and set things back again, more or less, to the beginning of the negotiations. The Take it or leave it.

        Syriza has prepared full plans for reform, and with a road to growth. Benefitting not only Greece, but the creditors.

        Meanwhile, please note, Left Platform are not some weird extreme separate part of Syriza, but along with Synaspismos created SY.RI.ZA. Their job now is to articulate Syriza’s red lines. Lafazanis – unlike Costas Lapavitsas – does nothing without Tsipras’ ok. There is not going to be a split, if only because there is no viable alternative to Syriza and because they are not going to commit suicide as a party.

    2. Jackrabbit

      Wanting to remain in the Eurozone doesn’t mean that they WILL remain at all costs.

      Not only in remaining in the EZ economically beneficial, the desire to remain is important for raising the political cost to the Troika for their heartless intransigence.

    3. Yves Smith Post author

      The majority of Syriza voters is less than the majority of Greek voters. Tsipras campaigned on staying in the Eurozone. As important, Syriza’s poll ratings have round tripped. They went up hugely after the election and as of 2-3 weeks ago were back to virtually exactly where they were at the time of the election, 39% of voters. Given the trajectory, I can’t imagine they have risen.

        1. Ned Ludd

          According to your Wikipedia link, the latest Palmos Analysis poll to predict seats is from a month ago.

          If the Left Platform splits (or is shown the door), and a new election is called, I wonder who would get the most votes: Syriza or “Left Syriza”.

          I imagine, though, that a pro-Troika party would throw Syriza an anvil, as Yves says, and support a rump Syriza that accepted the Troika’s demands, in a no-confidence vote.

          1. Jackrabbit

            Lastest Greek Poll

            Tweet by Yannis Koutsomitis (@YanniKouts)
            June 5, 2015 [sourced from Guardian Live Blog]

            #Greece poll [MetronAnalysis/@parapolitika]: Syriza 45, ND 21.4, Potami 7.4, GD 5.3, KKE 5.2, IndGrks 3.8, PASOK 3.5 pic.twitter.com/nh6o0RSold

            The Syriza + ND coalition has a comfortable 66.4%.

              1. Jackrabbit

                I read on Guardian Live Blog that ND was supportive of Syriza stance with the creditors.

              2. Tsigantes

                ND is right wing and under Samaras has become an extreme right wing party with lifelong self-declared fascists on board in Samaras’ innermost circles.

      1. Tsgantes

        39% is higher than SYRIZA got in the elections. It is also a huge % of support by any measure in today’s democracies, particularly in a parliament of 7 parties, each with dedicated adherents.

        Meanwhile ANEL, KKE and Golden Dawn (17-18% together) are all pro-Grexit parties. Another 4% of voters belong to 4 other pro-Grexit parties below the 3% to get into parliament.

        29% (out of SY.RI.ZA’s 39%) + 18% + 4% = Total 51% pro-default / Grexit.

        Of the pro-Austerity parties, ND 16 -18% + Potami 6% + PASOK 3% = 27% plus 10% SY.RI.ZA pro-euro = Total 37%

        Meanwhile there are a lot of voters on the right who are also pro-default/Grexit who would turn in a different result in a referendum than in elections where entrenched partisanship wins out.

        Finally, the centre ground in Greek politics is historically centre-left, and SY.RI.ZA occupies that centre ground today. ND, To Potami are oligarch-funded neolib far right parties, along with neolib PASOK which the oligarchs have abandoned to die.

    4. Panagiotis Atmatzidis

      Perhaps that was why the media did not demonize him as they do any leaders who interfere with big business.

      They didn’t?

  8. RabidGandhi

    It’s hard not to stick with the ‘hard left’ in favouring Grexit.

    Back when Varoufakis discussed the perils of Grexit, it was painted as a choice between dealing with the terrible effects he mentions (bad export mix, sullying the waters they swim in…) vs. a plan to get Greece back to growth with infrastructure spending from Europe.

    But those are not the choices now. Now it’s terrible Grexit consequences vs. long-term Syriza-brand austerity: stay in the Euro with a 1.5%/GDP surplus (or worse) and no stimulus on internal demand. Both are ugly, but at least with Door nº 1 there’s some light at the end of the tunnel.

    Yves has made it abundantly clear what Syriza should have done (capital controls, not throwing away bargaining chips…), but that was then, when Varoufakis still had the promise of the stay-in-the-Euro-without-austerity glitter pony. If there’s another viable non-glitter pony option I’d love to hear it.

    1. Santi

      Greece gets ~3% GDP yearly subsidies from EU programs yearly, which means that any primary surplus smaller than, say, 2.5%, this is not really contractive. I guess this is the reason that the Greek government can accept this 1-2%

      As for the 3.5% that figures on both proposals for 2017-18, I guess they let themselves drag into “extendpretendonia” territory, give how difficult the negotiation is getting.

      Also, there have been rumours of Schauble resigning today. He should have been inhabilitated for corruption back when he handed the envelope, but resignation would be something…

  9. Swedish Lex

    Is the Greek parliamentary majority imploding?
    If so, bad calculation on behalf of Merkel. She should have given enough to get a compromise through parliament. Now it seems Tsipras may lose control at home.

    1. Yves Smith Post author

      The hardliners (not necessarily in Germany, but I’d imagine the really bloodyminded ones, like Latvia and Spain) want Syriza to fail in the most ugly manner possible. They might see this fight as a plus, in that they can use it to depict the left as incapable of managing when they get in charge of a government. If this is true, it’s going to make it harder to rein them in, since they are getting what they want and will thus be much less likely to relent and approve a kinder structural reform package or an extension of the bailout.

      And the G-7 is badly timed. Merkel will be busy with the big boys early next week and probably won’t have the bandwidth to do much to arm-twist them till mid-week (the weekend will be likely full occupied with getting the core leaders, Draghi, Lagarde, Hollande and Juncker on the same page). There are so many moving parts, plus some parties hardening their stances, that getting things on track, which looked low odds to me (I didn’t buy any of this happy talk, I thought it was all to keep the markets and Greek depositors calm as long as humanely possible) is now even more remote.

      1. Santi

        Spain presented a proposal to change the ECB mandate to prevent macroeconomic divergences in the ongoing euro governance reform process. I don’t think currently Spain can be considered “bloodyminded”, they are trying to change policies so to “deactivate” Podemos.

        Spain government, specially if De Guindos gets elected, can sell a successful negotiation as their effort, that will come back to the Spanish people…

        1. Yves Smith Post author

          They just want to avoid a repeat of what led to their real estate bubble and bust, which was rates being set too low for their economy.

          This is a nice idea but no way can the ECB do that. The ECB can only set one rate.

          And this has nothing to do with Greece,

  10. hemeantwell

    Reading this helpful overview allows me to clarify an objection to the game theory angle often brought into discussions of the crisis. The references in the media to game theory promise a potential for a systematic account — to say nothing about raising hopes for a prediction — that has not been fulfilled so far. Its parameters seem quite arbitrary; any analysis supposedly inspired by game theory usually involves a mundane account of strategic options open to a narrow segment of the total number of parties involved. In particular, I’ve seen no accounts of the negotiations that grant the left wing of Syriza player status. They are reduced to a limit on Tsipras’ options, the people of the red line, a naturalized constraint.

    That the left may have every reason to appear as such, given their political and humanitarian convictions, doesn’t deny that they are effectively parties to the negotiations and that they will be drawn into a system of strategic interaction. I continue to be surprised that we don’t hear more about Syriza, or at least its left, arguing before the public that a Grexit is necessary and inevitable given the fixed (naturalized) goals of the Troika. Both the Syriza left and the Greek people as a whole would be in a stronger negotiating position if this option at least appeared to be politically viable. We know that some of the left’s leaders, Lapavitsas, for example, have thought from the outset that Grexit would be the only option. But we hear nothing about their efforts to sway the public. Indeed, “the public” itself becomes reduced to simple citations of poll results that indicate a disinclination to leave the euro. There is quite an incentive to disrupt this impression.

    Perhaps the most useful way to pose this is that a game theoretical approach leads to a demarcation of the field of actors into a primary player subset, determined by formal institutional positions and guided by calculable interests that will result in a sorta predictable series of interactions. Then there’s another subset that is treated summarily, recognized as the bounds of the spotlighted actors. The upshot is a depleted political analysis, particularly when you have a population that, after years of struggle, has formed opinions and has become organized to varying degrees.

    And that raises how, in line with some tendencies in eurocommunist theory, Syriza was deliberately set up to be a relatively loose confederations of groups, as opposed to a disciplined, leadership-dominated organization. Although it may not be possible given the limits of coverage, their view of the negotiations needs to be better appreciated, especially when it appears that Tsipras might cave. Of course, he may damn well want to appear as though he will, in order to get these people out in the streets.

    1. Yves Smith Post author

      You assume the creditors think they can’t handle a default. That is the basis for the assumption re Syriza’s leverage. Draghi has said he’d rather avoid it but he can handle it. Merkel decided to go hard line and back the IMF two weeks ago. She was under no illusions re Tsipras’ commitment to his red lines. They’d spoken a ton.

      Plus I have been writing for months that the Left Platform would constrain Tsipras. If I could see that from here, don’t you think the negotiators were already aware of that and factored it in?

      That means, wrong or not, the creditors have already accepted the risk of default. That means the further Left Platform threat will not change the equation.

      One thing that would change the equation for the creditors is if they get evidence that they made an error in their assumption that they can handle a default, if Mr Market reacts badly and Draghi can’t tamp it down. And Mr. Market is periphery bond spreads; Draghi would not mind a cheaper Euro.

      The surprising news of the non-payment, which is a wake up call to investors that default risk is real and higher than most think, is a good test of how the markets will react and whether the ECB can keep investors calm.

      1. kemal erdogan

        I think they are “substantially” less confident they they appear to be. Otherwise, why would they play the negotiation games that long? I don’t really believe that is mostly because they want to wash their hands off. If their hand were that strong they should have cut the polite negotiation game a lot earlier. Now, it appears even default is considered by the creditors as a big event let alone exiting Euro. So, empty handed and naked Greece has not much more to lose.

        I also consider the fact that Greek deposits going into other Euro banks is also probably a good thing as it would give Greek depositors a boost in their purchasing power should drahma be reintroduced. It is essentially drahmas converted to euros on par. So, I think, Mr. Sinn indeed have a point and that is probably one of the main reasons Greece can pull this off.

        1. Yves Smith Post author

          Huh? Greece is the one that needs the money. From their perspective, it is Greece that has kept this going on so absurdly long. They told Greece (in the February Eurogroup memo) what it needed to do to get the funds. Only last Monday did Greece deliver its own complete reform package in what hopefully finally was sufficient detail.

          1. Jackrabbit

            This is the incompetent meme.

            I think noncooperativeness is a better explanation. They are noncooperative because:

            1) The Greeks wanted to talk about debt restructuring back in February but the Troika forced the two-step process (by threatening to pull support from Greek banks).

            2) Presenting a suitable debt service plan undermines Greece’s request for REAL debt restructuring. Greece will remain in the Troika’s stranglehold if creditor-friendly measures like interest recaps and extended maturities are employed.

            3) The Greeks could’ve taken the ‘deal’ on offer (after suitable whining) long ago (especially by the April 30th deadline for presenting a reform plan).

            4) Syriza leaders have talked many time about debt restructuring in the last months. Tsipras’ proposal from last Monday included a framework for debt restructuring, and in his speech to the Greek Parliament today he reiterated that that was a key part of what Syriza wants from the creditors.

            1. Yves Smith Post author

              No, Greece signed memo with a two step process. Greece capitulated on that long ago. And they had a memorandum that was expiring at the end of February, and that memorandum was extended to the end of June. The Greeks were told “no” repeatedly and clearly. Not accepting a defeat IS incompetent, period.

              The fight is not over restructuring. The creditors accept that the debt will need to be reworked. The fight is over structural reforms. I don’t know how many times I’ve said that.

              1. Jackrabbit

                The new government had to complete negotiations within weeks of taking office. They wanted a different process for resolving the crisis. One that included debt restructuring.

                The Troika forced the two-step process by threatening the Greek banking system. Syriza choose to sign-on to this because they wanted a chance to make their case. They have been noncooperative (by not coming up with a plan that would satisfy the Troika) as they lobby for a real solution. They irritate the Troika and appear ‘incompetent’ as a result.

                It’s not difficult to see that both sides lie. The Troika says they don’t fear a Greek default/GRexit – but they are still negotiating and there are more indications that they are concerned. Syriza is agreeable but noncooperative. We have to look beyond what they say to what makes sense.

          2. kemal erdogan

            Yes, indeed Greeks need the money. But that is not the whole story, apparently.

            It is true that EU handed over a list of what they want in February but they were not firm on stopping any further negotiations until those demands were met. EU let this play to drag much longer than good manners dictate.They could have just made clear that that was the end of it, just like Tsipras did today. Remarkably they did not do it. My thinking was that they did not want to appear as the imperial forces imposing their will on periphery, playing with the destiny of small countries at will, or perhaps because that is what they always do, coming together in Brussels and discussing is their profession, after all.

            Today it become clear that they are actually much less confident of the outcome of a Greek default than they say they were. What we see (direct involvement of Merkel and Hollande at the last minute, rumors of German finmin resigning, etc.) is that they are actually terrified of the fallout of a Greek default. That is speculation, of course. I have no direct information. But we will find this out soon. Le Monde op-ed as well as the speech today in Greek parliament binds Tsipras, he cannot do anything else anymore.

            I thought Syriza would capitulate on all fronts but now Tsipras made it crystal clear that they will not move 1cm more, whatever the outcome would be.

            1. Yves Smith Post author

              Huh???? The EU never handed over any list in February. Plus the EU is not a party to these negotiations.

              The Greeks and Eurogroup wrangled over an interim agreement and finally got it signed.

              1. kemal erdogan

                Yves, I meant eurogroup, it was for less typing and thought that was clear.

      2. hemeantwell

        But then we have Stiglitz today again saying that he believes there are great risks involved. Perhaps the Troika disagrees. But perhaps it is in their negotiating interest to appear to disagree so that they can maintain a hard line. So my basic assumption is that we really don’t know what people truly think because everyone has an interest in appearing to be as prepared as possible for all outcomes. And so, to get back to my basic point about the analytic scope of game theory, I think it is necessary to be as inclusive as possible in our roster of players. In the case of Greece we have informed, organized and, at least in the case of some sections of the population, desperate people who are seeking influence and who, as the dynamics of this mess play out, are going to be drawn into action and to engage in their own form of brinksmanship.

        1. Panagiotis Atmatzidis

          Please, please, please… The troika is composed by Mario Draghi (ECB), Djsselbloom & Sheuble and Lagarde (IMF). Have you EVER listen a technical speech by any one of them? I have. I’m 100% that they don’t know what a Laffer curve is. They are politicians. Scheuble want us to believe that the German the huge surplus is a positive thing for Europe and has nothing to do with the Greek crisis.

          Of course they believe that they can contain a Greek exit. To give an example listen Lagarde’s ideas to fight unemployment. A 5-year-old could do better. Then listen to the talk of Scheuble at Brookings. Did you expect such a low-level talk by the FinMin of the European economic powerhouse? Anyway, these people are in position of power, so Greece doesn’t really have a choice.

          1. Yves Smith Post author

            Um, Draghi had a PhD in economics from MIT. He certainly knows what a Laffer curve. He hopefully does not believe in it.

            1. EoinW

              We know he believes in Mario Draghi. They all believe in themselves. Achilles Heel?

          2. purple

            –Scheuble want us to believe that the German the huge surplus is a positive thing for Europe and has nothing to do with the Greek crisis.–

            Neo liberalism is a religion for them, with all the requisite superstition and pageantry.

  11. Maju

    Regardless that I still think the endgame will be default and Grexit (nothing to lose for Greece in it: things just can’t get worse than under the Troika), what really outrages me is the pretense of putting the voters of Madrid (who actually just voted in their local elections for something very similar to Syriza, much as the Scottish, Catalan, etc. voters did) above the Greek voters in matters that are primarily Greek. I must reject that absurdity as imperialism. If the EU would be a democracy, I guess we could all vote on this matter in a referendum or at the very least elect the members of the Commission and the ECB board. The EU is not a democracy, but at least Greece is.

  12. generic

    What would expiration of the bailout entail? It’s often brought up as some critical date, but the ECB is independent, as they keep insisting so supposedly isn’t bound by bailout terms and Greece hasn’t gotten money in a year. What does the bailout do?

    1. Yves Smith Post author

      Draghi has said point blank that he’d prefer there not be a Grexit but the ECB could handle it. Lagarde acknowledged that a Grexit was “a potential”. Tsipras made it clear he was not backing down in his Le Monde op ed. But the creditors went ahead with a plan they knew he’d find hard to accept. The message was they have red line too.

      Everyone on the creditor side recognizes the risk of a Grexit. Schauble has been saying for months that maybe Greece should go. He also said maybe Greece should have a referendum, which could provide support for a Grexit.

      They all knew this was a risk. The assumption of that post is that they didn’t believe that was a risk. Their statements over the past months say the reverse. There have also been leaks out of the ECB from IIRC in February and March re them studying this issue.

      1. ian

        “Draghi has said point blank that he’d prefer there not be a Grexit but the ECB could handle it. ”

        As if he would say otherwise, going into negotiations.

        1. Yves Smith Post author

          The actions, as in the toughness of the offer after the Le Monde op ed, says they believe it. The actions are consistent with that stance. And ex Greece, the market reaction was not at all bad given the surprise IMF move and the delay of the negotiations.

      2. Robert Dudek

        I recall back around the time of Syriza’s election, it was commonly said that there is no mechanism for any country to leave the Eurozone. Is this now miraculously a non-issue?

        Also, what about a default within the Eurozone – this was the course that Yanis advocated for years. Why are Grexit or capitulation talked about as the main options now?

        1. Yves Smith Post author

          There is no legal mechanism. The Eurozone treaties all describe it as irrevocable.

          Clearly, there is a de facto mechanism. Print drachma. It will take years for a suit in the European courts to get anywhere, even if anyone were to bother.

      3. purple

        Draghi is an idiot. Every EU bank would have collapsed in 2008 without dollar swaps, which I’m sure no one in the so-smart EU leadership anticipated. i.e., in a crisis, their precious currency is worthless.

        Greek Exit would mean the end of the Euro at some point. For one, the de facto alliances with Russia and China would add significant economic and political tensions within the EU federation.

  13. RabidGandhi

    That’s a good point about the Euro subsidies, but obviously it falls far short of the 10% per annum Bill Mitchell says Greece needs to return to growth. This is not to mention how they’ve caved on privatisations and debt payments.

    Also as much as I’d love to see the back of him, I don’t see how Schauble resigning would help the Greeks in any way, since Merkel has a deep bench of austerians who would happily do the same thing.

    Look I want Syriza to succeed as much as anyone, but they need to change course pronto with a tack to the left. This fairy tale that “all we need to do is sit down and reason with our oppressors” has been utterly debunked, and Syriza’s plummeting poll numbers seem to indicate that the Greek people now see this.

    (sorry this was meant to be a reply to Santi above)

  14. ira

    Syriza’s public messaging has been woeful. Take a look at the articles published in the Guardian on the negotiations. Perhaps a majority of the comments reiterate the memes, ‘Greeks are lazy bums. A country has an obligation to pay back its debts.’ Since the debt is not the issue, but rather austerity – or ‘structural reforms’ in Orwellian language -Syriza has failed completely in getting people to realize this basic fact.

    This is all the more galling considering that Syriza presented itself as a party that would be transparent and that wouldn’t play by the typical duplicitousness, obfuscation and treason towards its electorate that characterizes modern politics.

    Most incredibly, Syriza has the facts on it’s side: 1) debt that can’t be paid won’t be paid (especially since austerity makes it virtually impossible to generate enough income to pay the debt), and, 2) austerity has been openly acknowledged to be a political tactic to punish Greece and, more importantly, to scare the shit out of any country (read Italy) that would dare consider deviating from the politics of austerity.

    Greece’s negotiating has been akin to a soccer player alone in front of an empty net, but too afraid to shoot.

    Varoufakis has at times mentioned these issues. But not to consistently hammer them home — and thus to try and change ‘the common sense’ on the issue — is to have forgone perhaps the strongest card that Syriza had to play.

    1. Panagiotis Atmatzidis

      What? Varoufakis and Tsipras tried many times to show the stupidity of their partners but every single time they were put in the corner and hammered brutally by the local (Greek) and foreign mainstream press. You must read Al Jazeera to get a glimpse of reality.

      If people, instead of reading the Economist (which is a huge pile of pro-war sh*t) were reading actual economists on macro-economics, I’m pretty sure the reactions would be different. Comparing a nation to a corporation is as stupid as it gets, but people do it all the time.

      1. Yves Smith Post author

        She’s not reading the Economist, she’s reading the Guardian, which is left-leaning. The point is if you aren’t getting a sympathetic hearing in a venue that should be on your side, or at least give your message a fair shot, you haven’t done a good job of telling your story. And the government has done an APPALLINGLY poor job.

        Do they ever talk about the suffering in Greece? Have they invited TV crews in to do documentaries on the hospitals? Even when the creditors do things they don’t like, the government response is almost always a variant of, “They can’t tell us, a democratically elected government, to do that!” That is incredibly lame. It come off as being all about Syriza’s political ego.

        And did it not occur to Syriza that there are 18 other democratically elected governments that ALL have to agree to any bailout, and their voters don’t care about Greece unless Greece makes a case to them?

        1. kemal erdogan

          Yves, you are mistaken. Guardian is left leaning only on non-economic issues. For everything that matters economically they are no different than financial times, for example. They have few commentators who would write from the left but none challenges neo-liberalism.

        2. Tsgantes

          The Greek coverage in the Guardian is principally by anti-SY.RI.ZA PASOK mouthpiece Helena Smith. The Guardian coverage of Greece and economics generally is from a soft-neo-lib pro-EU standpoint. Truly poor quality.

          Last week longtime editor Alan Rusbridger (friend and backer of Lord Mandelson aka Prince of Darkness, and of Tony Blair) finally retired. And lo and behold the first sensible Guardian article on Greece in 5 years appeared as an editorial 4 days later. i.e. The Guardian view on Greece’s debt crisis: the Ultimatum game. A total turn around. There may be hope for the Guardian yet.

    2. HotFlash

      Much of this is Greek to me, in as, I don’t have all the bkgd and certainly no the econ chops, but I have to wonder.

      This is all the more galling considering that Syriza presented itself as a party that would be transparent and that wouldn’t play by the typical duplicitousness, obfuscation and treason towards its electorate that characterizes modern politics.

      How can you play serious poker with the troike and still be transparent to your constituents? I don’t see how it is possible. I dunno, should we do a kickstarter for Greece or something?

      1. Tsgantes

        Good question Hot Flash. And here’s the answer.
        Ever heard of Left Platform? Group of 58? They are playing out (debating) all the issues at stake for the Greek electorate in these highly charged yet diplomatically constrained circumstances. And it is crystal clear (i.e. transparent) to us.

  15. Gerard Pierce

    Back in 2012, there was a published interview with Varoufakis on ABC (Australia’s BBC):

    The key point of the interview was that Greece is doomed because the EuroZone is doomed, and nothing that Greece can do on it’s own can change that. If the EuroZone reforms itself, Greece might or might not be able to save itself.

    Has Varoufakis published anything to indicate that he no longer believes what he said in 1012?



  17. Thomas Lord

    has the look of needing to quell a party revolt

    Anyone can spin “just so” stories.

    Nevermind that SYRIZA’s action here is completely consistent with their platfrom from before the election through today. Nevermind that careful reading shows the PM and FinMin have never contradicted that platform in their statements (in spite of countless attempts to assert they had).

    What we are seeing is just as easily seen as SYRIZA solidifying its already existing constant stance even more, at the critical moment.

    No, this must be a reflection of some kind of internal party soap opera and nothing more.

    Riiiggghht. Suuurre.

    1. Yves Smith Post author

      Snark does not make for much of an argument or change facts. Tsipras had to have an emergency Parliamentary session and defer making his counteroffer. The proximate cause, per Greek as well as other European reports, was the leak of the 47 page proposal he made to the creditors, which got the Left Platform in a fury.

      If he were in control of the situation, he would have continued with his original plans.

  18. Dan Allen

    The entire political spectrum is against the deal, not only Syriza’s left flank, but also Syriza entire, and even New Democracy as well.

  19. Mr. G

    Tsiprias’ desire for a “political solution” appears to be an attempt to outfox the politicians….as contrasted to a technical solution…in which Varoufakis was unable to outfox the technicians.

    But the same amateurish lack of forethought is bleeding through the napkin.

  20. Steven

    It looks like Greek participation in the Turkish Stream is still very much a go: http://www.euractiv.com/sections/energy/greece-says-financing-agreed-extend-russian-gas-pipeline-315048 Is a 110 mile undersea pipeline from Greece to Italy a possibility? The linked article says:

    Tsipras is struggling to unblock EU and IMF rescue funds, and Russia has dangled the possibility it will help finance the project, which it has alluded will generate revenue that Athens could use to help pay off its mountain of debt.


    Ever since the leftist Syriza party swept the elections in January, Moscow has been courting Greek Prime Minister Alexis Tsipras, a former Communist who has made no secret of his desire for closer ties with Russia, and criticised the EU sanctions imposed over Ukraine.

    What are the total sums involved in Greece’s debt? Wouldn’t this be a good way for somebody (Russia, China, Bill Gates) to win friends and influence people?

    1. Jackrabbit

      Greece owes about 320 billion Euros (about US$355 billion) or about 180% of their GDP. That is nearly double what most economists view as sustainable.

      The pipeline project creates jobs during construction but it is uncertain if it will provide future income because the US/EU have tried to block Russia’s attempt to bypass Ukraine.

      Greece is a NATO country and cozying up to Russia might cause problems and even lead to a military coup. So in the short term anyway, there is only so much that a Russian relationship could help. One of these is increased trade. Another is some investment that could help boost the economy.

      Putin has tried to pull Europe out of the US orbit so they are likely to want to help more if there is a GRexit. The more that Greece looks successful outside Europe, the more it may entice other countries to exit.

      1. purple

        A lot of the Greek military is probably traditionalist and pro Orthodox and pro Russian. Bringing along the Independent Greeks forestalled a lot of coup possibilities I think.

  21. Gaylord

    Shall we talk of root causes? The entire monetary system based on DEBT is defective and headed for collapse, so no amount of arguing over “restructuring” will stop the sinking of this Titanic. The capitalist growth imperative is self destructive — it will destroy our planet’s ecosystem and most of the life that depends upon its stability which is rapidly deteriorating.

  22. EoinW

    I’m scratching my head over this “hard” Left business. Isn’t the Left wing of Syriza doing what leftist politicians are suppose to do? Have we had so many years of the Left selling out that we no longer remember when the Left used to have principles?

  23. EoinW

    The Greek people are so shell shocked by what has happened to them that I do not put much faith in these opinion polls. Their country has been taken hostage and they are suffering from Stockholm Syndrome. Their opposition to leaving the EU is like a hostage pondering the police coming in to shoot it out with the hostage takers. Much safer to continue being a hostage than to risk becoming a dead former hostage.

    In short, the Greek populace is no longer able to rationally decide what is in its own best interest. I’m not saying I know better, nor anyone else at NC. However I think we’re pretty reasonable to be requesting a “light at the end of the tunnel”. Anyway, why did polls suddenly matter in this post-democratic world?

    1. financial matters

      One thing I like about Syriza is that they have robust discussions on meaningful issues which is hard to say about any other elected governing party. And they are bringing disenfranchised groups into the discussion.

      They are taking on the anti-neoliberal, anti-austerity fight which seems to be getting a foothold.

    2. Jackrabbit

      I also wonder at how relevant the polls are. I don’t doubt that they PREFER to stay in the EX but (for most) that doesn’t mean that they prefer to stay AT ALL COSTS.

      Now that we are in the endgame, and the Greek people better see how they are treated and what the options are, it seems very likely that the polls will change.

  24. purple

    I’m not too interested in Greek opinion polls since they express irreconcilable differences. This has been the basic problem for SYRIZA from the beginning. No to EU austerity and No to the drachma. Sorry, that’s not going to happen in anyone’s political lifetime.

    There needs to be referendum to force people to make a choice and stop with the whining and finger pointing.

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