16 Jun 2015

Deal or turmoil: a guide to what’s happening in Greece

With negotiations between Greece and its lenders stalled, but the differences amounting to around 0.6 per cent of Greek GDP, the stage is set for either a last-minute deal or a breakdown.

The pressure on Greece has been upped with a report in the German press that the EU is prepared to suspend Greek access to the Eurosystem’s Target2 payment mechanism, in order to force it to implement capital controls – i.e. restrictions on ATM withdrawals and transfers out of the country.

greek decision tree

Nobody is sure whether this would be legal, but in any case, the ECB also has a whip hand over Greece and could at any point withdraw its support for the Greek banks, which would then need a bailout that involved confiscating deposits above a certain threshold (known as a bail in).

Greek eurozone crisis: is time running out for Syriza?

However the risks to both strategies are large, because they would both be seen as imposing economic hardship on a country that the ECB is supposed to be regulating, and could massively bolster support for Syriza among the nationalist and conservative sectors of the Greek electorate.

Greece’s hand includes (a) the threat to default on €320bn largely owed to German and French taxpayers, (b) the massive hit to the ECB’s credibility and the Eurozone’s stability that would ensue. It should also be noted that Greece could attempt to conclude a separate deal with the IMF following a partial default, throwing into sharp contrast the EU’s management of the situation.

A further complication is the imminent declaration (Wednesday) by the Greek parliamentary debt truth commission that some or all of the debt is illegal. This would lead to cases in the European courts and give Greece a potential legal argument in favour of suspending payments.

I’ve mapped this all out as a decision tree. It’s stark – and it represents the crisis scenarios in greater detail than the calmer outcomes.

It’s very hard to look at it and not worry about the future of 11 million people who thought, by signing up to the Euro, they had guaranteed their country’s economic stability.

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14 reader comments

  1. James says:

    Thank the baby Jesus George Osborne got us out of the deal Alistar Darling signed us up to contribute to the Eurozone bailout funds!!

    Thanks based Osborne!

  2. BobRocket says:

    Shortest path.

    Deal on Budget -> No
    9-Month Pause -> Yes
    Crisis on Hold -> Yes
    Government Survives -> Yes

    Job Done

  3. Yorgos says:

    Paul, the video I watched was not only informative but also very accurate and objective. It is difficult to produce such a piece on a such complicated and sensitive topic. The diagram of options is the same – well thoguht. We’ve been making thoughts with friends yesterday and we concluded more or less on what you depict in the diagram. Congratulations for your excellent work.

    A Greek

  4. Nikos Retsos says:

    Deal or Turmoil? Deal means that Greece would go back to the previous reckless “borrow and spend” policy, while Turmoil would force the Syriza party to face the music -that is “Turmoil.” And that would actually be the best medicine for Greeks – in the long term. is the best solution

    Here is the epiphany of the Greek crisis today. Alexis Tsipras promised the Greeks as easy life on borrowed money – as the Greeks had before the crisis- because he wanted to be Prime Minister. Surely politicians make promises, but Tsipras promises were too reckless – if not berserk! If he thought that he would outsmart all Europeans, and let his constituents live on the hog on foreign funds without consequences forever, a Greek exit from the EU is the only necessary sanity for him and his constituents. And then, they would have nobody to blame than themselves! Nikos Retsos, retired professor, USA

    1. Drew Campbell says:

      Tsipras isn’t promising anything of the sort. The Greeks are well aware they cannot return to the hedonistic economic structures of pre-2008; the austerity has made that reality only too plain.

      But they have been punished enough. Continuing to expand austerity will more likely annihilate the fabric of Greek society, lead to their exit from the first the Euro then the EU, leaving a failed and vulnerable state, most likely run by fascists. Turkey will seize on its weakness, leaving Greece open as a bridgehead for all kinds of fetid extremism, and its economy will continue to tank.

      Syriza is the only realistic hope to redeem Greek society and economy. Their plan is to build a more productive economy by giving ordinary people a far greater stake in making it a success – i.e. the opposite of the complacent, lazziez-faire attitudes of the pre-crash Greece. Any reading of their manifesto makes that crystal clear. They are under no illusions on the necessity to turn around Greek attitude to engagement with genuine economic success and how to share that why it is best to share that as equitably as possible.

      The EU, meanwhile, are resisting not on ideological grounds and not even, ultimately, for financial or economicy pragmatism. The game is to bring them into line with the failed neoliberal model because powerful elites are fearful of a successful left-wing alternative.

      The fact is the neoliberal hegemony has failed and failed utterly, not just in Greece. We all know it but the structures of our so-called democracies will not permit that debate. Syriza, Podemos and others across Europe are trying to create an alternative – before it’s too late.

    2. James says:

      It sounds to me like you have not visited Greece in many years.

      While Greece is responsible for a good portion of their troubles, most of their problems happened after they joined the Euro and most of it debt was private rather than government debt, but the reckless lenders seem to think they bear no culpability. As for living high on the hog on borrowed money, Greeks, like most poor people, have always worked longer hours than Germans, so that lazy Greeks thing is, and was always, a myth. Economics is more like a crap shoot than a morality tale, and the accidents of geography and history have a lot more bearing on your life chances than any tired national stereotype.

      Regardless of blame, austerity has not worked, and as the following short film shows the Greeks quite rightly have had enough


  5. Andrew Dundas says:

    Isn’t part of the problem the cult of early retirements that successive Greek governments have promoted?
    Early retirements are part of the fallacy – once prevailing throughout EU States – that encouraging older workers to retire, somehow reduces unemployment. Instead, early retirements cost huge amounts of public debt and the scourge of Age Discrimination. Neither of which does anything else except create further unemployment.

    1. jon says:

      Might be a good thing

  6. Mike Healey says:

    I live and work in Corfu. You have to be close to the Greek community to see the suffering and hardship that has resulted from years of austerity.

    What Greece needs is improved productivity, not financial sanctions and further impositions from the ECB. Greece’s debts can never be repaid while austerity shackles this cash-strapped country.

    It is a proud nation and, according to recent polls here in Greece, support for Syriza is increasing as Greece faces a deepening crisis.

    A deal MUST be struck – a deal that will help Greece recover otherwise it is the start of the end of the EEC with Portugal, Spain and Italy surely following Greece’s departure.

    Is that what Angela Merkel really wants? Is forcing Greece out of the EEC the best way to ensure the coherence and continuation of a vibrant Europe? Surely not!

    1. Andrew Dundas says:

      What the EZ wants is increased productivity. Which the Greek Government refuses to permit.

  7. Boffy says:

    It sounds like one of the immediate acts Syriza need to take is to sack the Greek central Bank Governor, and appoint someone who will work with the government.

    Above anything else it would put a shot across the bows of the institutions.

  8. Philip Edwards says:

    If there’s any humour in this, it’s the sight of you foaming at the mouth on last night’s broadcast – full of the usual hatred for people who stand up for themselves against far right economic thugs. People who would rather die on their feet than live on their knees.

    You even managed to get in the usual propaganda lies about Our Boys and Our Tanks “fighting against communism” back in 1947. As usual you forgot to mention it was that event that marked the beginning of the end of the unlamented mass-murdering genocidal British Empire. To be precise, the date was 17th February 1947 when Sichell sent a message to Acheson that the Brits were “experiencing difficulty administering” Greece as partisans fought against Greek fascist monarchists. The memory is still fresh in Greece, if not in your far right empty head. As is memory of 1970s fascist Greek colonels supported by the CIA.

    Watching you and Frei peddling your usual line in extremist fear-mongering garbage was one of the comedy highlights of the year thus far.

    I wish the Greek people well in their courageous fight against the IMF/ECB thieves. I hope they tell them to stuff their “austerity” where the sun don’t shine. And tell you and Frei to shove your propaganda in the same place.

    By tonight I fully expect you to be foaming at the mouth. I can’t wait for that supremely funny moment.

  9. Leslie says:

    I can hear the number crunchers behind the scene working out the effects on the Euro should Greece now be let go. This has been years in the making.

    It would have likely been better for the Greek people not to have been in the Euro from the start, or to have left in 2008/9, by now they would be in a better position – but the rest of the Eurozone could not let them leave at that second date as the Euro was suffering too much instability.

    It does look like the French and German politicians have now decided that life in the Euro can survive the exit of Greece. The ethics on both side appear a tad murky.

  10. Beth says:

    Referendum on what? If on staying in the euro, would not just putting the vote to the people engender such a bank run that it would force an exit?

    Also, if there are elections, would the outcome be that the old government that the troika kinda liked come back, or would it be either Syriza or no collation at all? The troika might want to be careful what they wish for, since they might get it. :-)

    Thanks for the flow diagram — it is really helpful. I just found your blog, so far it seems that you have good ideas to put forth.

    Thanks, Beth

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