Tsipras' Greek Dilemma; Default Or Betray His Electorate

10/5/2015

By Tim Worstall

The general view is that the Greek endgame is coming ever closer. There’s a €750 million repayment to be made to the IMF this coming week (which everyone says will indeed happen) but there’s not a lot more cash left scraping around at the bottom of the barrel. Already all the cash balances of the local authorities and state organisations are being called into the centre to be available to pay maturing debts. Once that’s gone it’s difficult to see where any more can come from. For the outcome of the actual economy itself is well below forecasts, meaning there’s not going to be any sudden surge of tax revenue to save the day. And the final horn of the dilemma is that the IMF and the Eurogroup (along with the ECB, formerly known as the troika) simply aren’t going to release the last tranche of the bailout funds unless Syriza folds on two of their “red lines” in this negotiation, pensions and labour market flexibility.

As the FT puts it:
Monday’s meeting of Eurogroup ministers in Brussels may or may not turn out to be a make or break moment for Greece and the eurozone. There is no doubt that moment is creeping closer, however, or that the International Monetary Fund and the billions it is due to be repaid by Athens this year alone will play a central role in what happens next. Whether a deal is concluded in Brussels or not, Athens owes the IMF €750m on Tuesday.

And The Guardian has been on the ground talking to people:
A deal with its creditors – the European commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) – on moves to liberalise the economy would give it access to the remaining €7.2bn from a €240bn bailout. But it has refused to budge on two “red-line” demands – for pension cuts and looser rules on hiring and firing – and hopes of reaching an agreement in time for a meeting on Monday of the eurozone’s finance ministers have gradually seeped away.

The troika is insisting that Greece must not lower the pension age and also must liberalise some more the labour market. Syriza, seeing itself as the sort of left wing party that just doesn’t do those sorts of things is refusing: thus that red line argument. And it is fair to point out that Syriza are the democratically elected government and they were elected on a platform of not doing those sorts of things (or, in fact, those two specific things).

But as I’ve pointed out before what you do with the money of the citizens who voted you in is one thing. Demanding to be allowed to do the same thing with money you’re borrowing from others is rather different. And if Greece is going to make the payments it needs to in the coming months then it needs that last tranche of that loan. But the troika refuses to hand it over while Syriza is threatening to do what it was elected to do. The grounds for this refusal are pretty simple too: most economists would agree that raising the pension age and having a more liberalised labour market (from the point Greece is at now at least) will make it easier for Greece to repay the whole loan in the future because future growth will be faster.

One of the two groups needs to budge because it’s not at all obvious that there’s some Deus ex Machina out there that’s going to square the circle otherwise. Various ideas have been floated: the Germans will make war compensation (not going to happen, most certainly not in the right timescale), The Russians will prepay for a gas pipeline (not enough cash and not soon enough even if they do) and that the economy will recover leading to booming tax revenue (it’s just not happening). Someone’s going to have to fold here.

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