Just a few hours before Monday΄s scheduled Eurogroup, the main players seem to have shown their cards through an unprecedented series of leaks of letters they have exchanged between them. In their attempt to analyze that correspondence, some of the biggest international media are predicting that the meeting of the Eurozone finance ministers will be fruitless. I, however, would beg to differ; I would like to take the risk and suggest that this Eurogroup will achieve a compromising deal, which will lead to the end of a game in which we have been playing with many sacrifices and with no hope of a victory at the end
Before I move on to unfold and explain the conclusive part of my analysis, I would first like to demonstrate the reasons that lead me to believe that a provisional agreement will actually materialize.
The Greek finance minister, E.Tsakalotos, is going to Brussels armed with two new flat bills on the pension/insurance system and taxation. The bills have already been voted in by the Greek parliament and are now Greek laws. The new laws have incorporated a large part of the reforms and measures that the Eurozone requests from Greece. It is, however my opinion that the Greek FinMin will be forced to bring forth a new bill in order to satisfy the European Central Bank. To achieve that, the bill will have to include additional measures, worth 3,5% of the GDP as well as the automatic “cutter” mechanism-a set of automated cuts in public expenditure to be enforced should the government fail to reach the agreed goals.
After the avalanche of recent leaks, of the conversation between two leading IMF employees, the additional memorandum of understanding between the EU and Greece, the letter of C.Lagarde to the Eurozone leaders, the subsequent answering letter of E.Tsakalotos, and the Juncker statements, we may safely reach two conclusions: first, Alexis Tsipras is prime minister of Greece on parole. Should Greece's creditors decide to -through a mere toughening of their stance- they could simply deliver a new ultimatum and lead him to lose his seat. The second is that there is no common ground between the Eurozone and the IMF, nor is there going to be without more suffering for Greece.
Keeping those conclusions in mind, the next step should be to ask whether the leading Eurozone powers have decided to use their next reserve. This could be a broad coalition government led by technocrats, or whichever government a new electoral process might bring. I would claim that this is not the case. I see no reason why they would want to stop utilizing A.Tsipras since he seems, and is, willing to vote any bill they desire. The political situation in Greece is very unstable and the new elections could lead to utter destabilization. A broad coalition/technocrat government seems to be the last resort and it will be probably kept as the final solution, but not yet.
At this point, any analytical discourse should include the discussion over the possibility of a Brexit, a parametre that cannot be overlooked, particularly after the Wikileaks revelations. Should we accept that the Europeans are indeed mindful that a possible collapse of the Greek bailout agreement might affect negatively the referendum, on whether the country should remain or leave the EU, in the United Kingdom, then we must assume that Juncker is emphatically for an agreement.
On the other hand, Lagarde's letter is crystal clear with regards to the prerequisites that the IMF will demand in order to remain as part of the lending group. The combination of these two, one,a highly probable estimation, the other, a fact, can only lead to the conclusion that any compromise, any form of agreement can be nothing but an extension of the Greek drama.
The Europeans could possibly agree to commence a discussion about the Greek debt, on the basis of a reprofiling of the payments due(thus lightening the financial obligations of Greece in the following years). They could promote the Pitela proposal for a 15% of the GDP “cap” on the payments as a helping hand towards Greece. In exchange, it would seem logical to ask Tsipras for the completion of the negotiations with the IMF regarding the Automatic Mechanism for Fiscal Adjustment and its passing from the Greek parliament before the first evaluation of the progress of the third bailout program is completed. Within that median agreement, Monday's Eurogroup could possibly find a way to deal with the country's liquidity problem, either through a mini-tranche or some other form of capital injection from the ECB. In fact, while I am being bold, I would go as far as to guess that a Eurogroup statement could even include a reference to a reprofiling of the Greek debt (an imaginative use of an already imaginative term) since the ESM is capable to re-position the payments without the need of an approval by the various Eurozone parliaments (the parliamentary procedure is a thorn on Ch.Merkel's side).
Having already dared far too many suppositions, and having risked to be completely disproven in a few hours, I will now move on to the second part of my hypotheses. I do however ask you to keep that second part in mind in the case of any kind of median agreement or temporary “truce”; regardless that is, of the success or failure of the first set of my guesses.
Greece is now at the endgame of the match, having already played a chaotic middle game where it has lost many pieces in order to avoid an early checkmate. Unfortunately I believe that the end result is already decided and this is true on two levels.
Firstly, and in keeping with our hypothetical path, a re-positioning of the payments due towards the Greek debt would offer no real advantage regarding the end of the game. The elongation of the program, through a lessening of the amount of the payments would only increase the numerical debt of the country. As it is the debt is already close to 200% of the GDP and is a strong deterrent for any kind of serious investment. Secondly, the Pitela proposal might sound good but it should be noted that the payments towards Greece's creditors are not calculated with regards to the country's GDP and a 15% cap on a decreasing GDP is not an attractive prospect. Finally, the continuation of the technical talks in order to find voluntary (just in name) measures, will only serve in inflating the insecurity of both the investors and the wider society thus only achieving the failure of the new goals (which will keep being increasingly ambitious as time goes by).
17 months ago, Alexis Tsipras won the elections because he managed to represent the hopes of his people that a painless resolution could be found for the Greek drama. Today, nobody believes in such a possibility. The main argument of the government now is merely that There Is No Alternative (goinga as far as to claim that on the September elections the citizenry in effect adopted the TINA axiom) . I personally believe that the “President's men” have misjudged the reactions that such a choice can ignite. This is not a rare occurrence; everybody who climbs to power makes this mistake once they start believing that they are irreplaceable.
Alexis Tsipras seems to have made the right choice in putting his money on the fear of the citizens in front of a possible exit from the common currency union, but he is now failing to take into account the reaction that this Chinese Water Torture might bring. In the beginning the prisoner believes that it is quite simple to endure a few drops of water yet it is not long before he has reached insanity.
That is exactly where the problem lies in my opinion; the prime minister believes that by kicking the can further, a few months at a time, he might achieve something. I cannot know exactly what he is hoping for. A change in the Eurozone balance and policies? Somewhat, somehow manageable election results? A major advance through the Brexit developments? Something or even anything…the problem though is that these continuous postponements of the final solution (or decline) are affecting society in the same way that the water drops affected the tortured. They cannot create a positive investment climate, the only way in which the current program could work, and at some point the reaction of the society will become completely unpredictable.
The Greek PM claims that the defeatist and scaremongering consensus is the creation of the media which serve the status quo but the truth is that, apart from the members of his government and the journalists of those papers who are directly affiliated to his party, there is not one international medium, or in fact any reputable economist who shares his optimism.
For all those reasons, due to all the opportunities wasted by the previous governments, due to the many sacrifices imposed on the Greek people without any worthy result, due to the false strategy and the haphazard analysis of Alexis Tsipras, I believe that we have now reached the final stage of the match. The end is already foreseeable; decline. The only thing to see now is how many moves it will take to get there…and if we will be brave enough to ask for a rematch.