Athens – The meeting between Yanis Varoufakis, the new Greek finance minister, with the finance chief of the eurogroup, Jeroen Dijseelbloem, ended in a very tense press conference.
The Greek government is continuing to talk with EU leaders and after Vourafakis’ shock, the next move is to assure everyone that everything will be OK that satisfactory negotiations can go ahead. Prime minister Tsipras phoned the chief of the European Central Bank to assure him that Greece sought an agreement. An anonymous official said:
“The discussion was conducted in a good spirit and it was confirmed that there’s a willingness to find a mutually beneficial solution for Greece and for Europe.”Tsipras has also said that he never intended to act unilaterally and that he was certain that Greece and its creditors will ultimately reach an agreement. I fail to see how the decision not to negotiate with the Troika or seek an extension of the present bailout is not a unilateral action. He also pledged to pay back Greece’s debt to the Troika of creditors. How he can do this while also keeping a campaign promise to write off some of the debt is difficult to fathom. Perhaps, there is no rule about telling the truth in this game but surely that is true of political games in general.
The mechanism by which negotiations will take place have not been established. Varoufakis said only that it would be through EU leaders rather than the Troika. Varoufakis seems to be acting on that idea as he met with the French finance minister, Michael Sapin, in Paris only to travel on to London the next day. Tsipras after visiting Cyprus, will join Varoufakis in Rome and then will meet with European Commission President Jean-Claude Juncker as president Holland of France on Wednesday. The two are on a whirlwind tour to gain support for their move to get the new game rolling. France and Italy may become allies in helping set up new negotiations as they both oppose the austerity rules imposed and demanded by countries such as Germany. However, neither country agrees to a “haircut” or writing off part of the Greek debt as Varoufakis and Tsipras have demanded. The Greek Economy Minister Georgios Stathakis claimed that Greek debt repayments should be linked to its economic growth as a means of keeping its payments under control. Greece will face about $11 billion US in repayments this summer.
Troika officials continue their threats against Greece. Erkki Liikanen pointed out that Greek banks — already facing huge problems as well as precipitous declines in the value of their stocks — will be cut off from funding if there is no deal reached by February 28. In order for about 7 billion euros in funds to be released as part of the bailout, an agreement must also be reached by the same date. Without more funds Greece will not likely be able to meet the 10 billion euros in repayments scheduled for the summer. Varoufakis says Greece will continue issuing short-term treasury bills even though it already reached the 15 billion euro limit agreed to with the Troika. The Greek government obviously does not accept that agreement. Greek banking stocks already fell 40 percent since the elections last Sunday. Neither Varoufakis nor Tsipras are scheduled to visit Berlin or Frankfurt. They are opponents in this game.
The Troika refuse to accept that the game has changed at all. The old rules and conditions must obtain even if it forces Greece to Grexit. Tsipras appears to believe that his opponents led by the Germans are bluffing. Several German groups have warned Tsipras what will happen if he does not negotiate with the Troika for an agreement by February 28th. The Institute of German Economic Research (IW) says that a clear mechanism must be put in place to force Greece out of the euro zone if it fails to comply with the reforms agreed to:
“Financial support must be cut off if Greece does not comply with its reform commitments. If Greece is going to take a tough line, then Europe will take a tough line as well.”Another group ZEW research said that EU authorities should emphasize that they are willing to let a Greek default run its course rather than cave to pressure. The EU should make it clear that they will not be blackmailed. Jürgen Matthes, IW’s international director, claims Europe should punish any violators of euro zone austerity policies so that discipline will be maintained:
“We have set up a crisis prevention strategy that relies on conditionality. If this is not enforced in the Greek case, everybody will say they want the same thing. Syriza succeeded in selling an illusion that Greece can end the reforms and stop paying the debt, and still stay in the euro. This is impossible. If they do that the European Central Bank cannot accept collateral guaranteed by the Greek government. This will force the Greeks to return to the drachma and that will cause massive disruption. There will a government default, corporate defaults and bank defaults. The financial system will simply break down.” .Those are the rules, according to the Troika supporters and we will continue to play that game not a different one with new rules established by Syriza. German Finance Minister Wolfgang Schaueble said he was just sick of defending his position:
“We have given exceptional help to Greece. I must say emphatically that German taxpayers have handed over a great deal. In contrast to 2010, the financial markets have faith in the eurozone. We face no risk of contagion, so nobody should think we can be put under pressure easily. We are relaxed.”In other words if you are not going to play our game you had better take your players out of our euro zone because ours is the only game here.
Tsipras and Vourafakis may be able to convince other European leaders that the old game led by Germany is outdated and failing and actually threatening European growth. Vourafakis’ complaints and policies are supported by standard Keynesian theory and also by many eminent liberal economists such as Paul Krugman. Perhaps Greece can gain enough support to create a new game. However, it is more likely that unless Syriza caves it will end up in a Grexit. So far Syriza has not revealed what its game plan is if a Grexit happens.