Will either side blink as we head towards a Greek default?
Last night’s assertion by Greek finance minister Yanis Varoufakis that he would not be submitting any new proposals to the creditors appears to have seen Greek officials draw a pretty distinct line in the sand with respect to the current negotiating position of the Greek government.
All the while somewhat belatedly European officials appear to be drawing up contingency plans in the event we see a Greek default in the coming weeks. If they really have left it this late to start drawing up contingencies then they really have been complacent.
European officials have been remarkably consistent in their insistence that Greece implements the current bailout program; however this insistence is likely to lead them up a blind alley given that the Greek government blames the existing program for a lot of the problems currently affecting the Greek economy.
Why agree to a program that has manifestly failed on pretty much every level irrespective of the amount of blame to spread around, and it would be a massive climb-down at this late stage if they were to suddenly pull back?
Given that the nature of the game as well as the economic numbers have changed, it seems reasonable to assume that Greek officials perceive that they have nothing to lose by forcing the creditor’s hands.
It is also pretty clear that the US and EU officials do not want a failed state on their hands at a time that Greece is on the forefront of a number of geopolitical fault lines with the volatile Middle East situation as well as concerns about a pivot to Russia.
This suggests irrespective of what happens in the coming days, and despite the dire warnings of non-compliance by German and EU officials, Greece will not be left to fend for itself, and Varoufakis and Tsipras must surely know this.
With the IMF already uneasy about the sustainability of the current debt load it could be reasoned that Varoufakis surmises that the only way to open up a discussion on any form of debt renegotiation is for Greece to force the creditors hand, given they currently won’t entertain the idea.
This suggests that unless the EU backs down then we could well see Greece fail to make its payments to the IMF at the end of this month, which is likely to move the situation into new uncharted waters, as politicians seek to avert a serious political rupture.
It is in no-ones interests for Greece to leave the Eurozone and irrespective of what happens in the coming days there doesn’t appear to be any mechanism in place that would allow for Greece to be pushed out.
It would be like the US pushing Florida out of the union, which means that we could well be having a whole new conversation in a few weeks’ time.
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