The PJ Tatler

The Absolutely, Positively, Without a Doubt, Last, Last, Last Chance for Greece to Avoid Default

“Never send to know for whom the bells tolls; it tolls for Greece.” (With apologies to John Donne)

For months, the EU, the European Central Bank, and the IMF have negotiated, bargained, cajoled, begged Greece to come up with a plan to satisfy their debt requirements without cutting pensions and wages for Greek workers further, as the Greek government has demanded.

Greek Prime Minister Alex Tsipras has promised a dozen times that he would present a plan to the “troika” of powers that hold the purse strings on Greece’s bailout money that doesn’t include the austerity measures that Greece’s creditors are demanding.

This weekend, it became painfully apparent that Tsipras can’t deliver. His final proposals to a technical committee who would sign off on a deal so that Greece can get the last $7 billion of the $240 billion bailout and meet its debt obligations at the end of the month were termed “incomplete” by the creditors. Tsipras just can’t bring himself to take the steps necessary to cut his budget and start Greece down the road to a responsible government.

It took all of 45 minutes for the talks to implode today, and the EU says that there’s no chance for a deal as long as Tsipras continues to refuse to face reality. So the next decision will be entirely political; if Greece defaults, will they be kicked out of the EU?

Politico:

“The talks did not succeed as there remains a significant gap between the plans of the Greek authorities and the joint requirements of Commission, ECB and IMF,” said a Commission spokesperson in a statement.

The two sides still disagree on budget savings worth €2 billion, or 0.5 to 1 percentage points of GDP, the spokesperson said. At this point in the talks, the Commission is operating as the central negotiator for Greece’s international creditors, including the International Monetary Fund, which withdrew its technical negotiators in frustration last week.

Representatives from the IMF, the European Stability Mechanism bailout fund and the European Central Bank were waiting Sunday in the commission president’s office, in case the talks progressed. Commission President Jean-Claude Juncker himself was not present, though he was quoted by German news agency DPA as saying that Tsipras “knows the situation is coming to a head.”

The Commission spokesperson said that since the Greek proposals were still “incomplete,” the talks would now have to continue at a meeting of the Eurogroup of finance ministers, who gather Thursday in Luxembourg, along with IMF Managing Director Christine Lagarde. It could be the last chance to approve Greek economic reforms, since any new deal would need approval by some eurozone parliaments, including Germany, within the next two weeks.

On June 30, Greece owes €1.6 billion to the IMF. It’s also when the second bailout program expires.

The Greek government issued a position paper making clear its rejection of any drastic measures such as cuts in state pensions or wages that are anathema to Tsipras’ left-wing party, Syriza.

“The government reiterates, in no uncertain terms,” — and then in bold lettering — “that no reduction in pensions and wages or increases, through VAT, in essential goods — such as electricity — will be accepted,” the statement said. “No recessionary measure that undermines growth — the experiment has lasted long enough.”

Exasperation with the left-wing Greek government’s negotiating tactics has grown across Europe and especially in its biggest economy, Germany, where Vice-Chancellor Sigmar Gabriel wrote in Bild newspaper Sunday: “Not only is time running out, but also patience all across Europe. Everywhere the sentiment is building that — IT’S ENOUGH!”

Does that sound like the EU is willing to be generous to the Greek government?

One possible scenario now is that the EU finance ministers will meet on Thursday and present their own “take it or leave it” deal to Tsipras. He will almost certainly leave it and precipitate a slow motion crisis that could start with a run on Greek banks that would necessitate capital controls. The Greek stock market crashes, they are locked out of liquidity funds from the ECB, their banks collapse, and with no other options Greece leaves the euro and starts issuing drachmas.

But the political game is not quite over. European leaders may fear a breakup of the EU if that scenario plays out, which could lead to a variety of short term fixes, kicking the can down the road hoping Tsipras eventually wakes up. These measures could include forgiving some of Greece’s debt, restructuring their debt, or simply extending the IMF deadline a few months. These measures may not allow Greece to avoid some of the catastrophe — their banks are teetering and could collapse even without a default — but at least the currency would be saved.

So despite the doom and gloom coming out of Brussels, Greece may yet live to annoy the rest of Europe another day.