Berlin vs. Athens: Who Blinks First?

It looks like Greek Prime Minister Tsipras is finally getting the country to where he was heading all the time: out of the euro. After winning an extension in February of current bailout conditions, the Syriza-led government has made practically no progress toward accommodating the demands from its creditors. On the contrary, it is increasingly obvious that Tsipras is trying to manipulate the circumstances to where he has no choice but to declare a Greek euro exit.

Yesterday the Greek blog MacroPolis explained:

The Greek government faces a dire financial situation in the coming weeks, especially as lenders are unlikely to relent on the conditions of last month’s loan extension. In fact, Tsipras’ insistence on of pushing for a “political deal” is going nowhere: German Chancellor Angela Merkel, who he will meet in Berlin next Monday, 23 March, is unlikely to deviate from her preference for technical, rule-based solutions. Therefore, the risk of an internal default due to the inability to pay salaries and pensions is not negligible.

Tsipras knows that he has no leverage. If he wanted to keep Greece in the euro zone he would never have run the negotiations to this point. But he has, which strongly suggests that I was correct when I wrote on March 1:

Prime minister Tsipras wants Greece to secede from the euro zone so he can pursue his Chavista socialist agenda on his own. He cannot do that without a national currency, but so long as a large majority of Greeks want to keep the euro he cannot outright declare currency independence. He needs to build momentum and create the right kind of political circumstances. This extension of status quo gives him four more months to do so.

It is very likely that the Germans have called Syriza’s game. As a counter-strategy they refuse to concede anything more, but are instead doubling down on their demands and conditions for a bailout. Reports the Telegraph:

Greece’s hard-Left government has been told to redouble its reform efforts in a bid to begin rebuilding the trust of its eurozone partners after a marathon four-hour meeting of European leaders in the early hours of Friday morning. With the clock ticking on securing the country’s future in the eurozone, Athens was urged to speed up its commitment to raising revenues and overhauling its economy by Germany’s chancellor.

Apparently, Chancellor Merkel has decided to play the chicken race that Alex Tsipras has been begging for ever since he was elected. According to the EU Observer, Merkel’s allies in the EU leadership have de facto made Tsipras an ultimatum:

Give us a list of reforms, and you might get the money you need, Alexis Tsipras was told at a three-hour meeting with select EU leaders on Thursday (19 March). The Greek prime minister met with German chancellor Angela Merkel and French president Francois Hollande. The heads of the EU Council and European Commission, Donald Tusk and Jean-Claude Juncker were also present, as well as European Central Bank chief Mario Draghi and Eurogroup chairman Jeroen Dijsselbloem. Tsipras was reminded that his government must stick to the Eurogroup’s previous, 20 February agreement. He was also told his partners are waiting for precise figures about the state of Greece’s finances and for a set of detailed reform proposals.

Merkel would not push Prime Minister Tsipras for the sake of saving him. She could not care less for a political half-wit from a broke-and-beaten Mediterranean outlier. No, her motives are at a much higher level. She has realized that the days are numbered for the common currency project. Greece is tugging away at its corner of the European currency; a party similar to Syriza is rapidly rising in Spanish politics, opening the possibility for Spain to eventually follow Greece toward currency secession; and then there is the constantly present threat of a President Le Pen in France whose first executive order would be to revive the franc.

On top of this Chancellor Merkel is looking at the exceptional depreciation of the euro over the past year. While this is good for exports, it has had no visible effect on domestic economic activity in the EU, especially not in the euro zone. The ECB has emptied out all its conventional monetary-policy measures and even resorted to unconventional stupidities like negative interest rates on bank overnight deposits. Yet none of this has helped get the European economy out of its state of stagnation.

Whichever way the chancellor looks, the euro is a lost cause. The remaining question then is: who is going to write the script for the end of the common currency? Is it going to be the rogues in Athens (and Madrid) or is it going to be the Germans? By being at least as principled as Tsipras, Angela Merkel is taking charge of the euro dissolution process. Her goal is to guarantee an orderly return to national currencies – and when that return will happen.

Prime Minister Tsipras can look wobbly and indecisive next to Merkel, but nobody should make the mistake of believing that the Syriza-led government eventually wants to stay in the euro. As Euractiv reports, the secessionist attitudes that characterize Syriza are not limited to economic issues:

The Syriza-led government will be against an Energy Union that undermines Greece’s national interests, including in its relations with Russia, said Greek energy minister Panagiotis Lafazanis, who also ruled out any privatisation schemes for the country’s energy sector.

So there you have it. The journey toward “Grexit” continues. The only question is who will blink first – i.e., who is going to be the first to give up on the Greek euro membership? Will Merkel say “I’m firing you” or will Tsipras say “You can’t fire me, I quit”?