You have to be a horseplayer now that the Greek crisis is about to pop: Like any savvy handicapper you hold your main bet in your hand but keep a saver in your pocket.
When a European Union summit gathers in Brussels Monday, it’ll be the home-stretch sprint: Either E.U. leaders will settle up with Athens and the European Central Bank will release $8.2 billion in rescue funds by month’s end, or they won’t and it won’t.
My wager: There’ll be just enough compromise to make funds flow, avert disaster, and guarantee further wrangling later this year. My saver: Athens defaults on a payment due the International Monetary Fund at month’s end, and we’ll all spend drachmas next time we order an ouzo at a Mikonos bar.
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Until very recently one would have predicted just the opposite. The E.U.’s powerful hawks on the Greek question seemed relentlessly determined to let the eurozone crack if the Greeks didn’t conform to the diktat of the standard austerity regime. “My way or the autobahn,” as Wolfgang Shäuble, Germany’s Christian Democratic finance minister, might’ve put it. The Greeks were cornered -- Grexit seemed near.
Then the scales tipped last week, and Alexis Tsipras, the Greek prime minister, read the moment with acute political nous. “I believe we are entering the final stretch,” he said on Tuesday. “One could say real negotiation begins only now.”
As I interpret this slightly puzzling remark, the E.U. was losing its balance (and maybe its nerve) just as Tsipras was finding his feet (and recovering his nerve).
I see two reasons for this.
One, the E.U.’s apparent unity behind the Shäuble line has been crumbling—if, indeed, it wasn’t illusory all along. No need to improve on a note from a well-wired European source, sent in the middle of last week:
“Paris is now moving as far as she can toward compromise with Greece, without breaking contact with Berlin,” this source said. “Merkel is twisting and turning to move toward compromise without provoking a revolt in her party. Rome is aligned with Paris.”
Related: U.S. Treasury Secretary Says Greece Bears Burden to End Crisis
As to the I.M.F., it has turned a little schizoid amid these emerging alignments. “The IMF is now speaking with two tongues,” my source said, “one demanding still more concessions, the other saying that Greece needs a deal which substantially reduces the debt it took on to bail out northern European banks.” In a note sent Sunday, my source said, “My friends at the I.M.F. tell me they’re completely fed up with the E.U. for ‘stonewalling on everything.”
I see a lack of conviction behind all this. And fair enough, it is hard to sustain the argument for Bundesbank-style austerity when every single statistic and every malnourished, unemployed Greek indicates prima facie that it’s the problem, not the solution.
On the Greek side, conviction is precisely the word. As the record shows plainly, Tsipras and Yanis Varoufakis, his finance minister, have been doing all the compromising since talks on a new debt deal opened late last winter. When the governing Syriza party started to fracture a few weeks back, it was just as plain they had gone as far as they could without risking political disunity.
This lies behind a significant change in Tsipras’s tone lately, in my view. He’s now all about dignity, sovereignty, and his obligations to his electorate—as he was after he was elected in January—and he sounds as determined as E.U. officials used to.
To the Syriza bloc in parliament last week, Tsipras stated his position on increasing regressive consumption taxes: “I would like to make clear that deciding who will pay taxes in this country is the sole competence of the Greek government because the time has finally come for the bill of the crisis to be footed by oligarchs, not workers.”
Related: Greece Will Try to Bring More to the Table in Debt Talks
On demands for more wage and pension cuts: “Salaried workers, pensioners, and independent professionals won’t foot the bill.” The E.C.B. has employed “a tactic of financial asphyxiation since the beginning of February,” he said.
It sounds like rediscovered conviction to me. And this seems to have landed squarely in the E.U. by last Thursday, when two events combined to tip the scales.
One, a meeting of eurozone finance ministers in Luxembourg Thursday evening fell apart in less than an hour. Athens had signaled we’re not going any further in your direction. And the E.U. flinched.
Two, Tsipras had spoken earlier in the day at the St. Petersburg Economic Forum of his determination to “sail distant oceans, uncharted waters, in search of safe harbors.” Given that the Greek bearing debts was in Russia, this was in some part intended to make Washington keep up pressure on the E.U. to cut a new deal.
Greek-Russian relations have limits, as everyone acknowledges, and Vladimir Putin favors partnership above anti-Westernism. But he’s nobody’s fool, either. After formal talks with Tsipras Friday, the Russian president said he hoped a proposed pipeline from Russian gas fields to Greece would help Athens service its debt.
Related: Slovakia Ready for Option that Greece Exits Eurozone
I went to the betting window Friday, to be precise. That was when the E.C.B. announced that it would raise the amount of emergency liquidity available to Greeks banks by $2 billion, to $10.1 billion.
It was less than the Bank of Greece asked for in response to accelerating withdrawals—depositors took out roughly $5.7 billion last week alone—but that’s not the point. The bank headed by Mario “Whatever It Takes” Draghi stepped in rather than fold its arms in the manner of the inflexible Shäuble: That’s the point.
This is where we are as the E.U. summit convenes Monday. On Sunday afternoon European time, President Hollande and Chancellor Merkel told Tsipras in separate telephone calls he had to seal a deal with institutional creditors on reforms before E.U. leaders agree to release funds and restructure debt. Fine, but in my read the creditors are likely to do most of the compromising.
If this column’s wrong and no deal gets done, a couple of points should be made early. One, as Draghi just demonstrated, the E.C.B. is now equipped to respond to any fallout that may spread among other eurozone countries. A Greek exit will require capital controls and other complexities, but it’ll be Greeks, not the rest of Europe, who sail those uncharted waters.
Two, a Grexit will nonetheless come with costs for the E.U., and these will be political—even psychological. Some of these costs have already been incurred, indeed: The European project wears no halo anymore.
However the Greek question is resolved this week, it’s going into the history books as the moment the long dream of European unity started to look less promising, if not less possible.
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