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Greek Endgame in Sight

posted by Philomila Tsoukala

We have been hearing about the oncoming endgame to the Greek saga for almost two years now. Several developments have occurred in the past few months that may make the prediction come true sooner rather than later. 

The first is a seeming shift in the attitudes of European leaders. They are not blinking in the face of Greek government resistance to the punitive conditionality of the loan agreement. In fact, they are asking for such extreme measures in the face of a complete collapse of the Greek economy that one is forced to wonder whether their aim is rather to “volunteer” Greece for a default and, perhaps most of all, a euro exit. In any case, the tone of the debate has changed considerably, with many more European voices openly discussing the scenario of a default and euro exit, some confidently asserting that Greece’s collapse will not be Lehman. A FT article last Monday nonchalantly reported that the troika was using the threat of a hard default as a bargaining chip against the Greek government. This is an amazing statement. It can mean several things: 1) the troika thinks the famous firewall is now in place to avert the infamous contagion effects 2) the troika is playing a hard game of chicken to see who blinks, even though it doesn’t want Greece to default 3) the EU and the ECB are posturing to appease northern Europeans by showing they will really not take any equivocation from Athens on austerity, while Greek politicians are also putting up a show for the sake of their own electorate. Whichever of these things is going on, it signals a remarkable willingness to take the risk of no deal on both sides.

The second development is the dramatic, but unsurprising deterioration in economic and social conditions in Greece. Contrary to the media echo chamber rumors, Greece has managed to comply with the “internal devaluation” imperative quite well. The fiscal adjustment has been in the magnitude of 6% GDP in the course of a year and in the middle of a continued recession. Wages and pensions have been reduced, even though they are still higher than Bulgaria-as the troika indignantly points out. Consumer prices have remained stable, as nothing has been done to bust retail cartels and monopolies. Real wages have thus decreased significantly. The goal of increasing state revenue has also been achieved through an unprecedented tax campaign against the salaried, who constitute the only captive population of the Greek IRS. The same people who were already paying their taxes prior to the crisis are bearing the brunt, with potentially explosive consequences for social cohesion. Hundreds of thousands of small businesses have closed and unemployment is at a dizzying 48% among the youth. Eurostat numbers for 2010 show that one almost one in three people were at risk of poverty in Greece, up from one in five before the crisis. Homelessness, a practically unknown phenomenon in Greece until recently, has exploded, with numbers calculated around 20,000 for central Athens. A friend of mine recently told me that she has now become accustomed to the sight of people robbing the elderly of their grocery bags outside stores in central Athens. The unfolding pauperization of the middle class means that more and more people feel less threatened by the specter of a hard default because they are already in the position of not much to lose. Whether they form a critical mass already or whether we need to wait a few more months remains to be seen.

A third element that has changed is the position of the wealthy in Greece. Back in 2010 the specter of default and exit was a very real threat to Greeks with assets inside Greece who did not want to see them possibly turned into drachmas and devalued. Almost two years have passed since that time and most Greeks with any assets have turned them into bank accounts and apartments in London, Paris, Brussels, Frankfurt. According to media reports, prices in high end London apartments have gone up in the last year because of the wealthy Greek buying spree. That means that the same people who were putting pressure on the Greek government two years ago to accept the troika loan in order to avoid a default that could lead to exit, possibly stand to gain from a potential return to the drachma. Add to that the fact that politicians feel that consent to the new measures may make or break their survival in the coming reshuffling of the Greek political scene and you have a universe in which refusing to sign onto the new loan agreement (or refusing to abide by the terms of one already signed) becomes a plausible political move, even for the leader of the conservative party.

As I am writing these lines (and I had to write them several times over the last couple of days) the Greek government announced that it had reached agreement with the troika. Then some of its members started backtracking-two ministers resigned- and the German finance minister in turn refused to sign onto the new loan agreement under these conditions. Nonetheless, a vote is scheduled to happen in the Greek parliament on Sunday. Greek politicians will employ hundreds of special forces armed with tear gas when the agreement goes through the Parliament to protect themselves from the people they represent, as they did in July 2011. Since all these new elements weighing in favor of default are now in place, the demonstrations may provide a trigger accelerating political developments in Greece, even though the endgame may still drag on for some months. In either case, it is now in sight.


End game? I'm thinking opening development with a few pawns exchanged. As we're kicking around over at London Banker's place (londonbanker.blogspot.com), this is a cynical game of kick the can in which everyone knows there is little economic ability and even less political will to press this agreement past the end of the year. The patient's been given a shot of B12 and antibiotics, but Default the Undertaker is still waiting at the gate and isn't going anywhere.

Not even close to an endgame yet.


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