Watching the diplomatic and financial downwards spiral regarding the debt crisis in Greece, I am not particularly impressed or comforted by the skills of politicians or economists on both sides of the isle, or about the media.
The inability of both parties to find a consensus makes me wonder whether either sides actually wanted to reach a deal. On the one hand, there seems to have been a certain level of amateurism in the negotiations. At the same time, European leaders from creditor countries failed to implement more indepth reforms and to explain what was happening and dismiss claims that tax-payer money was going to greece. Lastly, the media decided that Syriza was just plain bad and reliably decided to exploit every prejudice among its readers and report the discussions in a pretty negative light.
Ultimately, however, my concern isn’t any of the above, but rather the fear that the disorderly mess emerging from Greece leads to a realignment of geopolitics in the black sea.
What bothers me about the media
It bugs me that the establishment’s media spent more time vilifying Syriza than trying to make them seem normal. May be if they hadn’t painted Varoufakis as crazy and out of control, there would have been a better dialogue. More of this, and less of that would have probably avoided mistrust between Germans and Greeks.
Also, confusions such as these don’t really help. Just because freedom of expression gives us the right to be stupid, doesn’t mean we have to just because it’s fun… While I might sometimes disagree with him on his political insights, I have to admit I was impressed with Krugman’s temporary restraint.
What bothers me about the behaviour of Greek leaders
I am scared to death by inflammatory statements like
I mean, the debate is being described in mass murder and mass suicide terms! It’s ridiculous! It’s the kind of chest thumping you’d expect from leaders ahead of a battle in a hollywood epic war film. It’s pure show off!
I am also not surprised that European interlocutors are not particularly charmed. You want to get help, and let us not kid ourselves, help is what Greece is asking for, you have to be nice or offer a return for their buck. The Greeks can’t seem to offer a decent palpable return, so they should be nice. At this, they have failed miserably. Having entered a coalition with the independent Greek who want WWII reparations and threaten to throw jiadists at Germany, is not the way to do that. It also comes across as amateurish and unreliable to unilaterally break off negotiations and call a referendum on the latest proposal while calling on the Greek electorate to vote against it.
Varoufakis also made some important mistakes. To start off, if your main leverage is others fear that you may be a nutcase, you don’t go around advertising how reports are doing your work for you. One cannot be a grand master of game theory while advertising how good it is that others are swallowing one’s bluff. Moreover, I am not sure that Varoufakis’ and is as good as he thinks.Is a Greek exit as damaging to the EZ as it would be for Greece? In principle, the beginning of the PSPP, its effects and the possibility of OMT clearly give the remaining member states of the Euro-Zone the shield they need to cover themselves against a Greek default. I’m not saying it won’t be problematic, but I do think it will be more inconvenient that dangerous.
What bothers me about European leaders’ behaviour
It particularly irks me that no one has come forward to correct the misconception that German, Finnish, Dutch or French tax-payer money has been used to pay the Greeks. The mechanics of the rescue are not at all like that. I’m ok with people not getting it, but I find it to be irresponsible that no one has corrected the notion. No tax money has gone to pay the Greek debt. As a matter of fact, the German tax-payers’ money will only go to Greece if Greece defaults. It should be obvious how moronic it is to say that Greece should leave so that the Germans stop paying for the Greeks. The Germans will only have to pay after the exit!
The way it works is that the EFSF/ESM goes to the markets and borrows money. When they get the cash they get an increase in assets caused by the extra cash they hold and an extra liability caused by their responsibility to pay back the bond they contracted with investors in financial markets. When the EFSF/ESM gives it to Greece, the assets of the ESM/EFSF fall because it has to give the cash away. At the same time it gets an extra asset in the form of the loan agreement it signs with Greece, which gives it a claim in the value of the loan. Meanwhile, Greece gets an asset increase in the form of the cash of equivalent size to the cash it receives.
The Germans, together with everyone else, including Portugal and Ireland, guarantee the funds necessary for the EFSF/ESM to repay any debt it issues in case it does not receive the money back from Germany.
As you can see, the Guarantors only have to pay when the guarantee is needed, ie: after default. So the Germans who feed this idea that Greece should leave the EZ should be conscious of the fact that they are lining up to pay their share of the Greek borrowing guarantee. What they are really saying is that they want to pay for Greek debt.
…are some pretty embarassing examples of international organisations’ failures.
Finally, I’m with Wolfgang Munchau: Why did they not provide a temporary extension of the funds to Greece? This would have allowed things to go on and possibly averted the Grexit that, short of a miracle, is now almost certain. The only explanation is that having been cornered by Tsirpas’ referendum announcement, EZ creditor governments gave up and decided to put an end to it all.
What Really Worries me About All This
Nevertheless, my main problem isn’t really any of the above. My main concern is what I would call the “a Grexit-creates-geopolitical-chaos” very worst case scenario. In that situation, a Greek exit leads to a realignment of Greece from NATO towards Russia. My fear isn’t that Syriza suddenly is charmed by Putin, but that the generals now that their budget is on the line (on that topic also check this, this and this), decide to take over after the default because of some misplaced perception that it’s their responsibility to intervene, and put an end to the failed policies and instability created by the “extremism if Syriza”. As a result, Greece veers from the rather-left to the traditionalist-authoritarian-right, for whom Putin’s Russia is just the right type of historical/cultural ally. With all that is going to happen, none of this would surprise me. If there’s any hope left, let’s hope it does not come to that.