The Eurogroup negotiations with Greek representatives in Brussels unexpectedly and acrimoniously fell apart earlier today. As The Financial Times reports:
A high-stakes meeting of eurozone finance ministers over the future of Greece’s bailout unexpectedly broke down early in deliberations after Athens angrily objected to a proposal that it continue with the terms of its current €172bn bailout, calling it “absurd” and “unacceptable”.The draft text, obtained by the Financial Times, states that Greece would agree to a six-month “technical extension” of its current bailout, which Athens has long viewed as a red line, Peter Spiegel reports in Brussels.[…] Shortly after Athens issued its angry objections, EU officials said the eurgroup meeting broke up after less than four hours of deliberations.
It looks like the other Europeans were genuinely surprised that Greece was so adverse to (and annoyed by) the suggestion of extending the current terms, even though that had been Syriza’s position both before the election and since. Both sides seem to be speaking different languages: the old pros have a certain expectation that, whatever the rhetoric, everyone will play by certain unwritten rules; Greece’s new party has no intention of going along with the old way of things and thought it had made itself clear.Meanwhile, the immediate crisis is largely driven by Greeks themselves, who are pulling money out of their banks at alarming rates. The lending to the Greek banking system right now is mostly financing deposit flight by Greeks trying to get out of a sinking financial system. Many Greeks are aware that they are authors of this chapter of their tragedy, but on an individual level it makes too much sense not to pull the money out.That doesn’t mean the Greeks have no alternatives. As Wolfgang Munchau notes, Athens has the option for a kind of non-GREXIT GREXIT: Greece stays in the euro but starts issuing government scrip. Cash strapped American states did this in the Depression; they were still part of the dollar zone, but they issued state promissory notes that traded (at a discount) and allowed them to pay their bills and their employees with something. Greece might well do something similar. The upshot would be that Greece would have two forms of money circulating at the same time. Brussels, meanwhile, has no mechanism in place to deal with this—or kick Greece out involuntarily. There are other options, too, some better, some worse. The Eurogroup, meanwhile, is talking tough, saying Greece has until Friday to accept an extension.As the BBC points out, “79 percent of Greeks back the government’s stance in negotiations, and 74 percent believe it will succeed.” Under those circumstances, it would be suicidal for Syriza to back down prematurely; the party has convinced voters that it has a plan that will work, so it can’t just throw in its hand early in the negotiations. But what happens to the government’s public support if the strategy fails? Will voters turn away if it looks as if the government has been peddling false hope and sweet dreams, or will the people rally around a government they will see as having been insulted and mistreated by an unfair and uncaring EU?The other unknown in the crisis is what Greeks will choose if and when it becomes clear to them that the only two choices are a hard and unpleasant austerity program or leaving the euro for good and all. The Greeks overwhelmingly want to keep the euro, probably because they know that their own government will mismanage any currency it can control.Greece needs European money more than the eurozone needs Greek membership; that is the cold logic that, to non-Greek eyes seems to be driving events. But the Greeks, and perhaps their new rulers, don’t see it that way.Interesting times.