We’ve been saying for months that the troika’s ultimate goal in negotiations with Greek PM Alexis Tsipras is to use financial leverage to force Syriza into abandoning its campaign mandate, thus sending a strong message to the EU periphery’s other ascendant socialists that threatening to disprove the idea of ‘euro indissolubility’ is not a viable bargaining strategy when it comes to extracting austerity concessions from creditors.
Over the past several days the political situation has come to a head with Tsipras expressing his extreme displeasure at the troika’s “coordinated leaks” and unwillingness to give even an inch on what the PM calls “absurd” demands.
Meanwhile, Syriza has splintered with the far-left faction demanding a return to the drachma and a default to the IMF. We’ve contended that Tsipras will not be willing to go that route and risk an economic meltdown that would likely see him lose power altogether. The more likely scenario, we have argued, is that Tsipras caves to the troika, compromises on the government’s ‘red lines’ (pension reform being the most critical) and risks a government reshuffle on the way to a third program, thus averting a euro exit and keeping Greece from descending into a drachma death spiral, even as the “solution” effectively strips the Greek people of their right to choose how they want to be governed — a tragically absurd outcome in what is the birthplace of democracy.
…And with that it will be missioned accomplished for the troika. The Greeks will remain debt serfs, Germany will have made its point and sent a strong message to the rest of the EU periphery, and the IMF… well, that’s still up in the air because Christine Lagarde has made it abundantly clear that the Fund does not wish to participate in perpetuating this ponzi any further unless Greece’s EU debtors agree to a writedown of their Greek bonds. Largarde and Draghi reportedly met with Merkel and Hollande in Berlin today, perhaps sensing that the charade is finally coming to an end.
Via Reuters again:
The chiefs of the European Central Bank and the International Monetary Funded headed to Berlin for talks late on Monday with the leaders of France and Germany on how to proceed with Greek debt negotiations.
EU officials said ECB chief Mario Draghi and Christine Lagarde of the IMF were joining the German and French leaders, and the president of the European Commission, with the aim of reaching a joint position on how to negotiate with Greece.
The unexpected development came after Greek Prime Minister Alexis Tsipras fired a broadside at international creditors that officials said bore little resemblance to his private talks with EU leaders.
Once again, here’s a flowchart which diagrams what comes next:
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For those interested to know what these “absurd” demands from the troika are, we bring you the following from KeepTalkingGreece who has the story:
Creditors command and demand, Greece is willing but … some red lines cannot be set aside. Apart from that, creditors’ commands are anything but logical as their demands could be only described as crazy. Furthermore the creditors seem divided as to what they demand from Greece with the logical consequence that the negotiations talks have ended into a deadlock.
According to Greek media reports,
While the European Commissions wants austerity measures worth 4-5 billion euro for the second half of 2015 and the 2016, the International Monetary Fund raises the lot to 7 billion euro for 2016. The all-inclusive austerity package should include among others €2.7 billion cuts in pensions.
Full article: Greece Abandons “Red Lines” As Troika Meets In Berlin To Craft “Deal” (Zero Hedge)