We’ve long said that negotiations between Greece and its creditors are more a matter of politics than they are a matter of economics or finance.
From the troika’s perspective, breaking Greece and forcing PM Alexis Tsipras to concede to pension cuts and a VAT hike is paramount, and not necessarily because anyone believes these measures will put the perpetually indebted periphery country on a sustainable fiscal path, but because of the message such concessions would send to Syriza sympathizers in Spain and Portugal. In short, the troika cannot set a precedent of allowing debtor nations to obtain austerity concessions by threatening to expose the euro as dissoluble.
On the Greek side of the table, Tsipras must convince Syriza party hardliners that concessions are preferable to Grexit and the economic malaise that would come with redenomination. For some on the Left Platform, compromising the party’s electoral mandate is simply not an option and it’s these lawmakers (who just two weeks ago voted to leave the euro and default) that Tsipras will need to sway or else attempt to push an unpopular agreement through parliament a gambit which implicitly assumes that the ensuing political upheaval and voter backlash is preferable to economic collapse. The problem with the latter approach is that it effectively means the troika will have succeeded in using financial leverage to subvert the democratic process, an eventuality that die hard Syriza hardliners are in no mood to suffer.
After one final attempt to table a proposal that retains some semblance of Tsipras’ defiant posturing, it appears he may have finally broken after a meeting with ECB chief Mario Draghi where is sounds as though the central bank warned the PM that without concessions, ELA to Greek banks would be cut off and that, of course, would mean game over as Greeks would take to the streets en masse. From Bloomberg:
European Central Bank President Mario Draghi told Greek Prime Minister Alexis Tsipras in meeting on Monday in Brussels that the ECB will help secure the country’s banking system as long Greece is in an aid program, Greek government official tells reporters on the condition of anonymity.…
And so, we turn to politics or, more appropriately, Greek politics because the fate of Greece now looks to rest in the hands of Syriza’s far left factions. Dow Jones has more:
To avert a default and possible exit from the eurozone, Greek Prime Minister Alexis Tsipras must sell Germany’s chancellor, Angela Merkel, on his plan to fix Greece’s finances.Then he needs to persuade Vassilis Chatzilamprou.
But out at the Resistance Festival, an annual gathering of Greece’s far left, the lawmaker from Mr. Tsipras’s left- wing Syriza party said he was in no mood for submission.
“We cannot accept strict, recessionary measures,” Mr. Chatzilamprou warned. It was after midnight Sunday, and the weekend festival was winding down. “People have now reached their limits.”
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We’ll close with what we said last week about the tough choice the PM faces: “Tsipras must decide how he wants history to remember his tenure as Prime Minister. Either he will be the leader who allowed Greece to crash out of the euro on its way to a redomination-driven economic collapse, or he will go down as the fiery advocate for change who caved under pressure and allowed the troika to stamp out democracy in the place where it was born.”
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And because this is Europe after all, someone had to deny the “rumors”:
- MERKEL SAYS THERE WAS NO DISCUSSION OF EXTENSION SCENARIOS ON GREEK BAILOUT
Full article: Greece Capitulates: Tsipras Crosses “Red Line”, Will Accept Bailout Extension (Zero Hedge)
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