Greece’s new finance minister, Yanis Varoufakis, announced Friday that the country won’t be cooperating with its European financiers.
The IMF, the European Commission, and the ECB — collectively known as the troika — got together to bail out Greece a while back, and Greece’s new government, quite frankly, is not happy with the terms it got.
Varoufakis told reporters Friday, “Our first action as a government will not be to reject the rationale of questioning this program through a request to extend it.”
This seems sort of crazy, but it fits into the possible scenarios in the event of a Syriza, or radical leftist, victory that Dan Davies mapped out before the Greek elections last week.
What Greece wants is debt restructuring.
What Europe and the troika wants, for the most part, is to keep Greece in the eurozone. Why? It’s the grand European project.
“It’s worth remembering that the ‘ever closer union’ is essentially an Empire-building project, and if you’re building an Empire, you don’t let yourself lose provinces just because they’re a pain in the neck,” writes Davies.
That said, writes Davies, the euro project is worse off, but probably won’t collapse, if Greece leaves the euro. Because European bureaucrats know that, Greece doesn’t have as much bargaining power as it might have a few years ago when the future of the euro project wasn’t really certain. But, it might be in the interest of Syriza, whether it knows it has no bargaining power or not, to pretend that it does. All it’s got to work with is the shock factor, really.
Davies lays out three scenarios for Syriza action and what that means for markets. Given today’s news, the first one can probably already be thrown out:
i. Syriza effectively crumbles. The radical version of their strategy, with doubling of the minimum wage etc, is given up on, in favour of some broad and face-saving qualitative adjustments to the program. There is no debt default, no meaningful face-value reduction and things continue much as they were in the status quo ante (which, recall, did actually have Greece getting back to growth).
ii. Syriza plays the “madman strategy” and Greece leaves the euro. This would be the mother of all buying opportunities, in my view, as it would surely be associated with a massive risk-off trade, but the market would be quick to subsequently realise that the actual effect on the Eurozone was heavily quarantined.
iii. Syriza plays the “madman strategy” and gets given meaningful concessions to keep it in the Euro. One would expect this to be associated with a lot of self-congratulation from the ECB and repetition of “whatever it takes” speeches, and the end result would be to either monetise or mutualise a load of the Greek debt burden. This would be very bullish too.
Greece is going with the madman strategy. Now it’s time to see how much eurocrats care.