| Image: Prime Minister of Greece (via Flickr) |
The reality is that Greece has a choice, a choice that gives Tsipras and his Finance Minister Yanis Varoufakis an overwhelming advantage as the end of June deadline rapidly approaches. There is an old adage that when a person cannot repay a Debt it is they, and not their creditor, who holds the power. This is founded on an even older adage: when you have nothing, you have nothing to lose. This is the situation Greece finds itself in and, from the political poker game played by Tsipras and Varoufakis over the past few weeks, it appears that they know it.
The troika, on the other hand, has plenty to lose. Worse yet—from the bankers’ perspective—they have blundered into a position where they face a ‘lesser of two evils’ dilemma. In order to begin reducing its structural debt, the Greek economy needs to run a surplus. This it cannot do because of the drain of servicing its debt, which currently stands at around 175% of its Gross Domestic Product (GDP). As Tsipras and Varoufakis have repeatedly pointed out, the only way forward is through debt relief, which is anathema to the bankers as it involves writing off billions of Euros as bad debts.
But the other ‘horn’ of the bankers’ dilemma is even worse—Greek default. Here the potential loss for the troika is much greater than the monetary write-off. Greek default—and ‘Grexit’, its ensuing exit from the Eurozone—would illustrate that the world’s bankers are no longer all-powerful and that other options exist for heavily indebted nations. These include Japan, whose debt is a towering 226% of its GDP, Italy (132%), the United Kingdom and France (both around 90%). Even Germany, source of the most strident demands for Greek reparation, has debts amounting to 80% of its GDP. A successful Greek default (successful, that is, from the Greek perspective) might start an avalanche of debt defaulting that shifts power into the hands of radical populist governments and massively disempowers the previously untouchable banking kingpins.
In this high-stakes poker game, Greece were first to lay down an ace: they announced that without debt relief they would not meet the €1.6Bn end of June repayment. The bankers responded by declaring that Thursday 18 June was the cut-off date for negotiations. Cue the music to ‘A Fistful of Dollars’ and the Sergio Leone close-ups of politicians’ eyes. Tsipras and Varoufakis held their nerve; the troika blinked. The next morning they suggested the possibility of an extension until the end of 2015 and scheduled further negotiations. The dilemma had been avoided—for now.
Greece has won this round, but the game continues. The bankers seek a way out of their dilemma that doesn’t involve debt relief or Greek default. Their best—perhaps only—hope appears to be that Tsipras’ Syriza party loses its support, forcing an election that brings into power weaker figures who accede to the bankers’ demands. However, even a temporary extension is a significant victory for Tsipras that can only increase his standing among his troika-phobic supporters. Tsipras and Varoufakis have demonstrated that the crushing power of the banks can be resisted. Whatever happens, this is a monumental moment in the history of global banking.
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