By Ambrose Evans-Pritchard Monday 09 February 2015
"The euro is like a house of cards. If you pull away the Greek card, they all come down,” says Yanis Varoufakis, the Greek finance minister
Rightly or wrongly, Greek Premier Alexis Tsipras calculates that Greece holds the trump card and that all the threats from EMU power centres are mere bluster Photo: AFP
Greece’s finance minister Yanis Varoufakis has spelled out the negotiating strategy of the Syriza government with crystal clarity.
“Exit from the euro does not even enter into our plans, quite simply because the euro is fragile. It is like a house of cards. If you pull away the Greek card, they all come down,” he said.
“Do we really want Europe to break apart? Anybody who is tempted to think it possible to amputate Greece strategically from Europe should be careful. It is very dangerous. Who would be hit after us? Portugal? What would happen to Italy when it discovers that it is impossible to stay within the austerity straight-jacket?”
“There are Italian officials – I won’t say from which institution - who have approached me to say they support us, but they can’t say the truth because Italy is at risk of bankruptcy and they fear the consequence from Germany. A cloud of fear has been hanging over Europe over recent years. We are becoming worse than the Soviet Union,” he told the Italian TV station RAI.
This earned a stiff rebuke from the Italian finance minister, Pier Carlo Padoan. “These comments are out of place. Italy’s debt is solid and sustainable,” he said.
Greenspan: Get ready for Greece to leave euro 08 Feb 2015
Yet the point remains. Deflationary conditions are causing interest costs to rise faster than nominal GDP in Italy, Spain, and Portugal, automatically pushing public debt ratios ever higher.
Berkeley economist Barry Eichengreen warns that Grexit would be “Lehman squared”, setting off a calamitous chain reaction with worldwide consequences. Syriza's gamble is that the EU authorities know this, whatever officials may claim in public.
Premier Alexis Tsipras is pushing this to the wire. Rightly or wrongly, he calculates that Greece holds the trump card – the detonation of mutual assured destruction, to borrow from Cold War parlance – and that all the threats from EMU power centres are mere bluster.
His cool nerve has caught Brussels, Frankfurt, Berlin, and the markets off guard. They assumed that this 40-year neophyte would back away from exorbitant demands in his landmark policy speech to the Greek parliament on Sunday night. Instead they heard a declaration of war.
He vowed to implement every measure in Syriza’s pre-electoral Thessaloniki Programme “in their entirety” with no ifs and buts. This even includes a legal demand for €11bn of war reparations from Germany, a full 71 years after the last Wehrmacht soldier left Greek soil.
There is no possible extension of Greece’s bail-out programme with the EU-IMF Troika, for that would be an “extension of mistakes and disaster”, a perpetuation of the debt-deflation trap. “The People have abolished the Memorandum. We will not negotiate our sovereignty," he said.
Macropolis said every item was in there: a pension rise for the poorest; no further rises in the retirement age; an increase in the minimum wage to €751 a month by 2016; a return to collective bargaining; an end to privatisation of utilities; cancellation of a new property tax (ENFIA); a rise in tax-free thresholds from €5,000 to €12,000; and a rehiring of 10,000 public workers fired “illegally”.
He did not row back from his campaign rhetoric. He did not water down anything. The demand for a debt write-down has been switched to a debt-swap, but this is presentational legerdemain. Nothing has in fact changed.
The speech puts Greece on a collision course this Wednesday with Eurogroup finance ministers, who are having great trouble coming to terms with the election of the first radical Left government in Western Europe since the Second World War. Nor are they listening to what Syriza is actually saying.
Jeroen Dijsselbloem, the Eurogroup’s chairman, issued an ultimatum last week that this week’s meeting is the final chance for Greece to puts its Troika programme back on track. The implicit threat is clear. Should Greece refuse, over €60bn of liquidity support from the European Central Bank for the Greek financial system will be cut off on 28th February, forcing the country out of EMU in short order.
“We don’t do bridge loans,” said Mr Dijsselbloem. It was a revealing slip. Syriza has not asked for a bridge loan. It has stated repeatedly and categorically that it never wants another euro in EMU loans. What it wants is a “bridging agreement” allowing it to raise an €10bn extra T-bills on its own domestic bond markets.
This showdown has reached the point where if goes beyond the proper authority of finance ministers and central bankers. Austria’s Chancellor Werner Faymann has already sought to defuse the crisis, knowing from his country’s history how seemingly minor confrontations in the Balkans can spin out of control. “We must save Greece and Europe from a Grexit outcome,” he said before meeting Mr Tsipras in Vienna.
In Washington, President Barack Obama has already warned EMU elites to be careful. “You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits,” he said.
A team from the US Treasury has arrived in Athens with instructions to bang heads to together on both sides, and to push for a pan-EMU reflation strategy. Nobody in Washington wishes to see Greece spun out of the Western NATO ambit, a failed state spreading chaos across the Balkans and drifting into the arms of Russia.
Nobody knows how this brinkmanship will end but it is already clear that the EMU authorities have misjudged the furious determination of the Greeks. Brussels will have to go back to the drawing board and come up with a Plan B. “We will not roll over,” said Mr Varoufakis.
The dispute is escalating to higher authorities, and changing its character. Europe’s leaders can no longer delegate this to technical officials. The political stakes are too high. The integrity of monetary union and the security system of the Eastern Mediterranean are both hanging from a thin Greek thread.