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.