Greek Games

The recent behaviour of the Greek PM has come in for quite a bit of questioning in the media. First, he wins a referendum overwhelmingly rejecting the terms set by Greece’s creditors and the ECB. Then he turns around and proposes most of them himself, and parliament votes for them! What was the point of the bailout referendum then? Is the guy suffering from senile dementia or something? Well there are two ways of looking at it.

It could well be that Tsipras is a masterful political manipulator who would put Frank Underwood (from House of cards) to shame. His game plan is essentially to extract Greece from its debt obligations, perhaps temporarily leaving the euro in the process, but setting up the Germans and the ECB as the fall guys. By appearing to be conciliatory he can pin the finger of blame for any default on Merkel and the German government, claiming that he was willing to stick his neck out and go the extra mile, while the Germans, for entirely ideological reasons, refused to budge. In fact they want Greece to leave the Euro. And thus the Germans are liable for the all the costs that result from that. Thus if Greece’s creditors want to be paid, go talk to the Germans.

And if this is the plan, it might well work. I suspect creditors and the international money markets will eventually forgive the Greeks. As, after all, its the sort of behaviour we’d expect from them. However, its not the sort of thing we’d expect of the Germans. The fact is that a major obstacle in this crisis, going right back to its start, has been the rigid ideology of the German conservatives. They have in essence put domestic politics ahead of political and economic necessity and this is something the markets will not forgive or forget quickly. I could easily see as a consequence of this crisis, regardless of how it pans out, Germany loosing its AAA credit rating. And I doubt they’ll get it back any time soon. Meaning many of those Germans urging a hard line could well see their pensions devalued and their mortgage rates increased.

Of course the other possibility is the Tsipras is in fact a politician floundering in political waters where he is way out of his depth. The constant shifting of the Greek government position reflects the fact that far from any sort of master plan, they are instead reacting to one crisis after another on a day to day basis. That far from secretly printing Drachmas since coming to power (as I speculated they might be doing before) instead they have no contingency plan for what to do tomorrow morning when the banks are supposed to open….and in all probability go bankrupt. If this is the case a messy exit from the Euro is very likely. Which will be bad news for everybody.