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A War of Words as Greek Meltdown Looms

As the reality of the intractability of the Greek crisis continues to settle into investors’ minds, European markets have started to feel tremors. Stock markets across the continent hit four-month lows, and fears of contagion drove up borrowing costs across EU periphery countries like Italy, Spain, and Portugal. After Germany’s EU commissioner called for Europe to prepare for a “state of emergency”, rumors emerged of a special meeting of EU leaders being planned for the weekend should no breakthrough be reached at Thursday’s meeting of finance ministers. EU leaders issued a carefully-worded “non-denial”, saying that no such meeting was planned (yet!), and that “any further steps will be decided in light of the outcome from the Eurogroup” meeting on Thursday.

Greek Finance Minister Yanis Varoufakis, who was sidelined in earlier negotiations by Prime Minister Alexis Tsipras because he rubbed his European counterparts the wrong way, will be representing Athens at Thursday’s meeting. Varoufakis said that he will not be bringing any amended proposals to the meetings, and called on Angela Merkel to broker a compromise with Europe’s creditors.

Tsipras, the politician EU leaders had earlier praised for his pragmatism, blasted EU creditors in a speech this morning, accusing the European Central Bank of tactics he likened to “financial asphyxiation”:

“The situation in which we find ourselves today is that IMF positions prevail when it comes to the strictness of austerity measures asked, while at the same time EU positions prevail when it comes to the denial for any discussion about Greek debt sustainability,” Tsipras, 40, said.

Are Europeans willing to countenance the turbulence and uncertainty that a Grexit would likely entail for the entire eurozone? How sure are they that the knock-on effects wouldn’t trigger crises in the other vulnerable economies? How certain are they that containing the repercussions of an uncontrolled Greek exit would definitely be cheaper than accommodating Greece? Have they properly gamed out what happens if and when Greece actually starts defaulting?

The Greeks are once again trying to play a game of chicken here, hoping that these are the kinds of thoughts that are keeping the Europeans up at night. The Greeks have, however, blinked in the past, a capitulation that may have convinced their EU negotiating partners that they will blink again. Is that a smart assumption? We may find out soon.

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  • Kevin

    The ECB and other EU institutions need to make clear it is committed to suppoirting countries like Spain and Portugal that are (more or less) working in good faith with European institutions to resolve their problems and that taking a hard line with a Greek government that will not come up with a credible plan is fully consistent with this. They should also highlight the progress Irekand and earlier several Baltic countries made in overcoming their problems.

    • f1b0nacc1

      Exactly. This is why cutting the Greeks loose is so essential for the EUnicks, since if they do not do so (i.e. let the Greeks slide), the other PIIGS may get ideas about what THEY can get away with.
      Ultimately the Greeks are small potatoes, but the Spanish, the Italians, etc. are not….

      • Pete

        Exactly. Greece has to go for the good of the whole.

        And besides, the Greeks are not innocent in all this. They created this mess. And the arrogance of the current leftwing greek government begs for a beat-down.

        Let the Greeks ponder their mistakes from their soon to be 3rd World status.

        • Andrew Allison

          I agree but, to be fair, the Eurogroup provided Greece with the money with which to destroy itself. And even worse, what the previous bailout did was socialize, i.e., transfer to the taxpayer, the losses of the reckless banks who loaned them the money. Nobody has entirely clean hands in this mess.

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