Greek Zero Hour: Default or Lickspittlry

The flurry of activity yesterday and today surrounding Greek debt negotiations is succinctly framed by this two-sentence paragraph found in "European Leaders Assemble for Urgent Meeting on Greek Crisis," by Liz Alderman, Niki Kitsantonis and Jack Ewing:

Unless they strike an agreement soon, Greece may not be able to make a series of coming debt payments. On Friday, Greece must make a €300 million loan repayment to the International Monetary Fund, and it owes €1.2 billion later this month.

Yves Smith at Naked Capitalism, "Greece’s Creditors Meet to Prepare Offer (Updated – Creditors Agree on Terms)," seems confident that Greece can meet Friday's deadline and has enough wiggle room to survive the month:

The press is awash with reports of a high-level meeting convened yesterday by Angel Merkel and attended by Francois Hollande, Christine Lagarde and Mario Draghi. The upshot is that Greece’s creditors have agreed to sort out their differences and come up with a proposal to present to Greece in the next few days. Greece is generally believed to be able to make its €300 milllion payment due to the IMF on Friday; if not, it has the expedient of asking to bundle payments under an existing IMF rule, which would give it till the end of the month to remit the €1.5 billion it has coming due in June.

So why the splashy optics of a Monday-night emergency powwow of big shots? There are several "technical" issues in play. Two key ones are pension overhaul and the value-added tax. The euro honchos convened to finalize an agreement on which of Syriza's "red lines" Greek leader Alexis Tsipras must cross.

Smith says that Tsipras is giving ground on pensions, agreeing to raise the retirement age to 67. The endgame here is to cripple Syriza and beat back any challenge to a bankrupt neoliberal orthodoxy. If Tsipras is made to kneel, violating his own campaign promises to protect if not increase pensions, and schlep a pension-cut deal back to parliament for approval, the troika will have won. Syriza's parliamentary majority will splinter. Already the Left Platform bloc of Syriza is gaining momentum. Left Platform wants to default on debt payments and return Greece to the drachma. As Alderman, Kitsantonis and Ewing explain:

Far-left Syriza lawmakers have become increasingly agitated recently, accusing Mr. Tsipras of making too many compromises on the anti-austerity pledges that helped sweep the party to power in January’s elections.

A new political uproar broke when a group of Syriza lawmakers refused to back the government’s nominee for a new representative at the International Monetary Fund, Elena Panaritis, a former Greek parliamentarian who once worked at the World Bank. In a letter on Sunday, more than 40 Syriza members, mostly lawmakers, took issue with her support of Greece’s last international bailout agreement in 2012, which the party considered to have been unfair and overly harsh. Ms. Panaritis withdrew from consideration on Monday, citing the opposition.

Although symbolic, it was the latest in a series of uprisings within Syriza, which during the election campaign had promised to take a hard line with Greece’s creditors in debt negotiations and to resist austerity measures. A hard-left faction recently pressed for but lost an internal central committee party vote to have Athens stop paying its creditors altogether if they demanded further austerity.

Mr. Tsipras is facing an array of pressures as critics from both the left and right in the Greek government question whether he has a viable plan to restart the economy, which slid back into a recession in the first quarter. At the same time, Greece’s creditors, the I.M.F. in particular, have resisted unlocking any aid unless the government can show that it will put its finances on a sound footing and run enough of an operating surplus to make regular debt payments. 

The dispute over Ms. Panaritis on Monday “shows that there’s a lot of exasperation in Syriza ahead of a deal with creditors,” said Harry Papasotiriou, a professor of political science at the Panteion University in Athens and the head of the Institute of International Relations. 

Even if dissent within Syriza deepens, the government would probably band together to push through any legislation needed to secure the bailout funds. Few lawmakers want to precipitate a default or force Greece to exit the currency union. But the hard-liners of Mr. Tsipras’s party could eventually break away, analysts said, especially the Left Platform, a faction that has already pushed for Greece to stop paying its creditors if they continue with “blackmailing tactics.”

This is the outcome I believe Merkel, Largarde, Hollande, Draghi et al are after. They want to force Tsipras into "Obama mode." Talk "hope & change" and deliver more of the same. Syriza's governing majority collapses as a result, and the moral to the story becomes, "See, that is what happens when you try to change the order of things."

AP is reporting this morning (Elena Becatoros "Greece submits draft bailout plan, creditors say not enough") that Tsipras has delivered a proposal to the creditors, and he's talking tough:

"It is now clear that the decision for whether they want to adapt to realism and emerge from the crisis without the division of Europe ... belongs to the political leadership of Europe," Tsipras said.

In the end, this is all a Kabuki. There is no alternative to a default. Greece has been hemorrhaging capital and must soon implement controls. This is the last paragraph from the Alderman et al piece:

In the meantime, Greece’s finances continue to deteriorate as deepening political uncertainty accelerates a decline in tax receipts and withdrawals of deposits from the nation’s banks. Last week, Greece’s central bank reported that deposits fell in April to €133 billion, the lowest level in a decade, after savers withdrew nearly €5 billion from the banks during the month. More than €30 billion was withdrawn between the end of last November and the end of April, according to the Bank of Greece.

And yet the troika persists in maintaining the fiction of robust primary surplus targets. According to Smith:

Things are even worse than they appear. The target for this year was 3%, and 4.5% for 2016. Most observers thought both figures were insane. And remember, when Syriza assumed office, Greece has a small primary surplus. As of April, the IMF projected a deficit of 1.5%, and matters can’t have gotten any better. To just meet Greece’s ask of 1% now means a swing of a full 2.5% of GDP, almost the unreasonable level they were expected to hit for 2015. Even if the creditors make what they think is a generous offer of 2% for 2015, that is equivalent to an asphyxiating 3.5% consolidation from the new starting point of negative 1.5%. 

So the creditors may have read too much into Tsipras’ offer to negotiate on pensions. Or they may feel they have to go this step regardless of whether their gambit will work. Or they may be in denial as to how badly Tsipras has been boxed in by his Left Forum (although he can always cut a deal with To Potami). At a minimum, both sides appear to finally be about to get out of the Groundhog Day phase of these negotiations to an end game. 

Zero Hour is rapidly approaching (although this has been said many times before). The "Either/Or" here seems clearer than before. Either Greece defaults on its debt, or Tsipras brings back the creditors' crummy deal to parliament and manages to get it approved only to see Syriza splinter, and with it the momentum of a resurgent Left.