Looks like all of Greece’s creditors have finally decided it’s put up or shut up time for reform. “Greek Prime Minister Alexis Tsipras is expected to face demands for tough reforms of Greece’s pension system, labor laws and other areas, as well as creditors’ insistence on painful budget measures to ensure that Greece runs a fiscal surplus before interest.”
At this point Greece seems completely and utterly broke, unless there’s more upfront money in that still unsigned Russian pipeline deal than reports indicate (doubtful, given Russia’s own financial straits), or Tsipras finds yet another hidden money reserve to tap (“We can can pay pensions from the children’s bone marrow fund!”). So despite Tsipras’ insistence that they be allowed to keep spending other people’s money on their bankrupt welfare state, this time the jig may finally, finally, really, we mean it this time, for sure, be up.
Here’s a piece that explains in terms of game theory why Tsipras overplayed his weak hand:
Now, as long as the EU keeps Greece in the Eurozone then the Tsipras administration will find itself forced to either exit the Eurozone or apply the austerity it promised to end. Not only would such an outcome send a clear signal to other Eurozone nations that exiting was foolhardy, it would also indicate that radical, nationalist, anti-establishment and anti-austerity parties cannot deliver on their promises.
The EU won’t force Greece to exit the Eurozone but it won’t offer anything to keep Syriza in power, either. The EU simply needs to keep negotiating without offering anything but strict compliance with what was already agreed upon, which is continued austerity in return for loans. In effect, to use a sports analogy, the EU just needs to “run out the clock.” In the end, it appears that Tsipras will either be forced out of office or forced to break up his coalition and form a new government with the mainstream parties, the outcome that EU and Germany have been angling for all along.
(Though make no mistake: that “primary surplus” was always illusory.)
A few more Greek debt crisis links:
Now Greece is threatening not to pay this week’s debt payment to the IMF unless a deal is agreed on. Once again, Tsipras is playing chicken with a Yugo, while his opponents are driving a Tiger tank…
Tsipras needs to stop making empty promises and get a clue. “He cannot expect Germans to volunteer the money Greece needs, so he can spend it on the kind of leftist economic fantasy that was discredited all over Europe in the 1970s and 1980s. Just ask Argentina where default followed by populist economics leads.”
Germany has good reason to stop subsidizing Greece, namely their own crashing demographics: “Germany’s birth rate has collapsed to the lowest level in the world and its workforce will start plunging at a faster rate than Japan’s by the early 2020s, seriously threatening the long-term viability of Europe’s leading economy.” (Hat tip: Powerline.)
“A Greek exit is already priced into the euro.”