By all accounts, the Greek government’s flirtation with Grexit almost ended in a shotgun wedding in the early hours of Monday morning. With the pastor summoned and en-route, Schäuble beaming at the prospect of the forthcoming nuptials, Tsipras had a change of heart, left Miss Drachma standing at the altar and conceded to the majority of the creditors’ demands. In so doing he put country above party, made a final break with the castles in the air spun by the ‘Sage of Aegina’, and honoured his promise to the electorate to keep Greece in the Eurozone. That the negotiating strategy he and his former Finance Minister had employed over the preceding five months had brought Greece to the point where it had no option but to acquiescence to the terms demanded lest it was summarily ejected from the Euro is now neither here nor there: the deadlock has been broken and a path to continued Eurozone membership has opened up. True, it won’t be easy, but to quote various members of the Eurogroup: where there is a will, there is a way.
Monday saw the latest twist of the Greek saga with reports that Tsipras’ government had, for the first time in the last five months, come up with some credible proposals. Positive noise from the more dovish of the creditors sparked a relief rally in European equities, with the Athens market up c.9% and the DAX up c.4%. Markets are making further headway today as hopes begin to crystallise that the long-awaited deal may be in sight.
As has been the case with much that has happened between Greece and its creditors, confusion – or perhaps more precisely, misdirection – has been the name of the game. Media reports of the wrong papers being sent to the technical teams on Sunday night tally ominously with Tsipras’ insistence for the process to take place at the ‘political’ rather than the ‘technical’ level. Is is simply the case that the Greek side wished to ensure that there was not sufficient time to begin assessing the detail of their proposals on Sunday, thus making certain that nothing substantive could be raised against these on Monday? If so, the theory behind this might run to the effect that by creating positive expectations in the media and the markets, it then becomes more difficult for the creditors to disappoint those expectations by reviewing the proposals in too rigorous a manner; if the headline numbers appear to be delivered, does it necessarily matter how they are reached? Isn’t it better, after all, to approach the matter from a ‘political’ rather than a ‘technical’ perspective? I think it is obvious whom we have to thank for this latest example of gaming.
The end-game approaches. Or, more accurately, the curtain is about to fall on the charade that has been played out on the European stage over the last five months. It has been a curious spectacle, a blend of game theory (so-called) and defiance, with Finance Minister Varoufakis betting that the opposition would crumble faced with the prospect of Grexit and Prime Minister Tsipras channelling popular anger at what is seen as the attempted subjugation of Greece by its creditors. Whilst the majority of Greeks (still) approve of their government’s negotiating tactics, the cost in economic terms has been significant: Greece’s economy, after tentative signs of revival last year, is back in recession, forecasts for the primary surplus have been cut by more than half and deposits have fled the country, with the ECB having to make good the system shortfall via the ELA mechanism.