July 8, 2015
I’m sure that many of us are watching the escalating cluster f*&k that is the negotiations between the Troika and Greece with amazement. It is as if both sides are desperate to prevent a deal. (I recently wrote about it here and here).
My question is simple, what if Greece does not want to find a solution?
It would certainly explain some of the more unusual moments of the last few weeks. Let me explain my thoughts…
Everyone involved has known for two years or more that the Greek debt burden is unsustainable. Even the IMF has admitted this now as well. If that is the case and it is unsustainable, then the negotiating position of the Troika that there can be no restructuring or haircuts puts Greece into a position that is potentially impossible to escape from.
Agreeing to no restructuring is the national equivalent of Greece being moved into a perpetual debtors prison. There are reasons that debtors prisons have been illegal for so long and those reasons typically involved the death of the debtor.
On the other hand, the events currently underway seem to be the alternative: a banking collapse, exit from the eurozone, issuing a new currency and who knows what other terrors this will bring to Greece.
In other words,
“Bunga bunga or death?”
“I choose death”.
“Ok, but first, bunga bunga!”
Hypothetically, if a person had just been elected to government, we would hope that his or her number one priority would be to ensure the safe future of the country and her citizens.
Given the situation which existed when they were elected, Syriza would have needed to assess the best potential outcomes for the country.
With debt levels as high as they are, debt write offs would have been at the top of their list. Given the unwillingness of the Troika or Germany to consider that, it might make sense to force the situation. If the continuation of the status quo leaves Greece on life support, potentially indefinitely, that can hardly be considered a solution. How much pain is needed to fix it once and for all?
The answer to that is that Greece would need to leave the eurozone, print it’s own currency and reclaim fiscal independence from the ECB. That might take a few years of further suffering, but enable Greece to finally claw it’s way out of the current mess.
If things go well, forcing a genuine collapse might enable the Greeks to negotiate the removal of hundreds of billions of euros worth of debt. In a country suffering so much, it could be argued that some more suffering is a fair price to exchange for a fresh start and the writing off of a couple of hundred billion euros.
In which case, it would be important for the talks to keep collapsing, for the will of the people to be consulted and followed, for the Prime Minister and Finance Minister to make wildly differing comments to the press, etc etc.
Watching from the sidelines, it has been hard to believe that Yanis Varoufakis really is a student of game theory, because his moves have seemed so wrong. Unless, of course, he has calculated that without a near total debt write off Greece cannot begin to recover. In which case, he might not be playing brinkmanship, he might be actually trying to drive Greece over the cliff to save her.
It is a dangerous game, but when the other existing options are so bad, how much worse can this one be???
Trading the reputation of a new and previously unknown government for internal financial chaos, an end to the debtors prison Greece finds itself in and many billions of debt, would potentially be a trade that makes sense.
If that is the plan and it works, Yanis Varoufakis might become a modern day Greek God.Author : financialguy