Greece's new left-wing government continues to insists on major concessions from its international creditors on debt repayment terms. So far, Germany, the IMF, and the European Central Bank, the underwriters of a $270 billion bailout for Greece, are saying, in effect, "get serious."
In Austria today, Greek Prime Minister Alexander Tsirpas said he was confident of reaching agreement on a short-term financing package before the current bailout expires at the end of February. That would buy time for a "compromise" that Greece wants to include reduced targets for budget surpluses, meaning that the government can spend more and tax less amid its deepest recession since World War II.
A failure to reach a deal on a revised Greek bailout is likely to trigger a sovereign default by Athens and possibly a cascade of similar defaults in other indebted European economies. That makes it a high-stakes game of chicken for everyone around the table.
Still, the history of such financial negotiations is replete with extreme bargaining positions that are later resolved in a compromise at the so-called 11th hour. The actual willingness of Mr. Tsipras and his new government to risk default and a departure from the euro is something that can't be measured by their public statements today; the same goes for the supposedly iron-clad position of their international creditors.
But while compromise is always the likeliest bet in such situations, not only are the tempers of the Greek and German leaders inflamed, but they have their domestic constituencies to consider. Many Germans resent what they view as being asked to cover the debts of profligate Greeks; many Greeks say they're being punished for the bad lending decisions of European banks, and are in effect being forced to honor bad loans they didn't sign.
Some economists and analysts believe Greece is headed out of the euro. Former Federal Reserve Chairman Alan Greenspan told the BBC on Sunday that Greece's economy can't recover while staying within the currency. “I don’t see that it helps them to be in the euro and I certainly don’t see that it helps the rest of the eurozone. I think it’s just a matter of time before everyone recognizes that parting is the best strategy.”
Protecting the broader eurozone has been at the heart of the current bailout. But the Greek government reckons that the pain has been largely one-sided.
Dead letter bailout
Over the weekend, Finance Minister Yanis Varoufakis implied the whole eurozone, as much as Greece, has a metaphorical gun pressed to its head. He told an Italian television station on Sunday that the eurozone could tumble "like a house of cards" if Greece were pushed out of the common currency. That same day, Tsipras vowed to the Greek parliament that he would roll back Europe's "cruel" austerity demands, saying the current terms of the bailout were a dead letter.
And he said his country has a "moral obligation" to demand war reparations for Nazi Germany's occupation of Greece during World War II. "We want to make clear in every direction what we are not negotiating. We are not negotiating our national sovereignty," Tsipras said.
European Commission President Jean-Claude Juncker shot back. "Greece should not assume that the overall mood has so changed that the eurozone will adopt Tsipras's government program unconditionally." And German Chancellor Angela Merkel, in Washington today to meet with President Obama, insisted that the terms of the current bailout must form the basis of any new agreement.
Bailouts as humiliation
One wild card in all this are Greek references to "sovereignty." International bailouts that come with demands that a country change its laws, open doors to more foreign competition, cut subsidies, and increase taxation of its citizens, have long inflamed indebted publics. Greece is a functioning democracy. It elected Tsipras government, largely out of anger over the failure of the previous government to staunch the economic pain. Greek voters are keenly aware they didn't vote for Ms. Merkel or Mr. Juncker. Nor did they chose Christiane Lagarde, a former French finance minister who now runs the International Monetary Fund (IMF).
Anger at being bossed around by foreigners can be a powerful force in national decisions and behavior.
On Jan. 15, 1998, Indonesian dictator Suharto was forced to sign an IMF bailout package that was treated as a national humiliation. The picture of then-IMF boss Michel Camdessus looming over Suharto with arms crossed at the signing, looking like a satisfied schoolmaster, didn't help. Within a day, riots erupted across the country over higher prices for food and fuel; four months later, Suharto was forced out amid chaos in the capital, ushering in five lean and chaotic years for Indonesians.
While the social disorder that confronted Indonesia in the late 1990s doesn't seem likely for Greece, its leaders and electorate seem very tired of being pushed around.