Published on 20 Feb 2015

Eurozone summit: the Greeks could face a fateful decision on Euro

There is a moment in the movie Gettysburg, when the Union infantry are about to be overrun by the Confederates. The Union commander throws into the fray a rag-tag regiment of farmers from Maine led by professor of rhetoric Joshua Lawrence Chamberlain. “Now we’ll see how professors fight,” says the general.

The answer is, with great recklessness. Chamberlain’s men run out of ammo but he orders a suicidal bayonet charge that saves the day.

It is my hunch that, inside every professor of anything – but especially economics – there is a Joshua Lawrence Chamberlain waiting to come out. And today might be the day.

For today is the Greek equivalent of Gettysburg. After the ECB agreed to extend emergency lending for Greek banks for only a few days, the Greeks have until tonight to reach a compromise deal.

Read more: Greece caves in a bit – but not enough for Germany

The far left government in Greece is not looking for a strategic solution to its debt crisis today; only a four-to-six month extension of the old bailout deal, and the right to amend it, so that it can carry out around 30 per cent of the anti-austerity programme it was elected on. In pursuit of this it has retreated doggedly for the last five days.

Yesterday finance minister Yanis Varoufakis (former professor at the University of Texas) climbed down on his previous refusal to ask for an extension of the old deal – but he still wants leeway to set his own budget targets, and to implement new laws giving workers back their job contract rights.

He has allies – in the shape of Italy, France and the Dutch finance minister Jeroen Dijsselbloem who runs the Eurogroup – but these allies are reportedly pushing the conditions to “the margins of acceptability”. Meanwhile Germany is insisting that the Greek government basically surrenders.

There is, inside the ruling Syriza party, a strong left with 30 per cent of the vote that wants to leave the euro. But the party leadership does not, and convinced itself and the Greek public that if the case were presented resolutely, Greece would find allies in Europe for breathing space, and to be allowed to carry out the experiment of a non-free market government in the euro area.

We find out today who is right. Though the political class in Europe is sympathetic to Greece – as evidenced by both Dijsselbloem and Juncker becoming advocates for the Greek compromise – there is a faction of true believers who always wanted: total Greek surrender or exit.

If they get their way the team around Varoufakis will face a fateful decision.

They include Euclid Tsakalotos, an Oxford educated economics professor at Athens University, now the economics minister in the Greek foreign office, and fellow professor George Stathakis, who runs the development ministry. Key to the discussions will be Tsipras former press secretary, and now minister of state, Nikos Pappas (think Alistair Campbell).

Last night I was told that, in the working group that prepares the Eurogroup meetings, the Greek compromise was the draft basis of agreement. That keeps Greece around the table. But overnight it looks like Germany has got words into the draft the Greeks can’t accept, and the pre-meeting ended without result.

In the next few hours, something decisive has to happen. Either the Greeks cave in completely. Or they trip the crisis into a new phase.

Varoufakis and his team want to stay in the Euro: they believe, and have sold the idea to their followers, that a “good euro” is possible, in which France, Italy, the ECB boss Mario Draghi and the European left persuade Germany to abandon low growth and austerity. But there is no sentimental attachment to the euro: Varoufakis told me just before the election last month he believed the Euro would collapse within two years if it did not reform.

If they are wrong, they will have no choice but to stage the equivalent of Chamberlain’s bayonet charge. The ECB will threaten to collapse their banks. Varoufakis and co will at the very least have to put limits on ATM withdrawals, some capital controls and start looking for interim loans from Russia and China.

There’s still a chance Syriza’s finance team will stage a fighting retreat, but after three weeks of exasperating tactical talks, and their domestic popularity currently on 80 per cent, they might just be ready to fix bayonets.

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6 reader comments

  1. Cath says:

    “Varoufakis and his team want to stay in the Euro: they believe, and have sold the idea to their followers, that a “good euro” is possible”

    I suspect commentators often over-state the idea of “sold to their followers”. The Greek issue now reminds me a lot of the Scottish referendum. When someone comes up with the idea that, “of course wiser heads will prevail and [some third party] can act in either a good way or a bad way, and we are confident they will act in a good way” followers who “buy” that line believe it too, because they are also inherently pro that third party while wanting it to reform – and believe it is capable of such reform.

    If that line is then followed, but the other party doesn’t act in a decent way, but in fact resorts to threats and being out and out nasty (as others may have predicted as a basis for “lets not vote to piss them off”) that doesn’t necessarily mean the followers will turn against those they believed. Quite the opposite. They have allowed the politicians they trusted to try it out and discovered that actually, that other party they thought had a decent side and is capable of reform actually doesn’t, and isn’t – hence turns them off that third party. Such tests effectively prove whether the person who’s bullying you has a decent side and is worth still working with or not. If not, well…

  2. SaltheGal says:

    Key to this is the forthcoming collapse of the Euro if it doesn’t reform along the lines that Greece is pushing for. If its negotiators refuse now, it will face the same problem next with Portugal, and on and on until it is just the DM, the drachma, the franc, the lire etc again. If Germany wants the Euro, rather than the Mark, then it has to do the deal, and the sooner the better. OK, so it’s demotion from Captain and Bursar of the Euroship to Foreman of the Engine Room, but that is what the Euro needs, if it is to become a real currency.

  3. bill hall says:

    One of the points that seems to be overlooked is the benefit the German economy is getting from having a very much more competitive exchange rate from a weak euro. But for the problems that Greece and others are having, Germany’s exchange rate would be some 20% higher or more. That competitive advantage is no doubt something Germany wants to retain and may explain why it is taking such a hard line short of Grexit.

  4. mick says:

    This started 1,000 years ago…see for what can be called deep background….

  5. Miriam Day says:

    Another great report from Paul Mason. It seems the Germans are indeed reluctant to allow Greece ‘to carry out the experiment of a non-free market government in the euro area.’ Their position is not based on economics, it is ideological. The Greeks must either submit, or, as, Ambrose Evans Pritchard wrote in the Telegraph: ‘A central bank that is supposed to be the lender of last resort and guardian of financial stability [will be instructed to take] a deliberate and calculated decision to destroy the Greek banking system.’

  6. Andrew Dundas says:

    Bluffing is of no use now.
    German Banks have more than halved their percent of claims on Greek, Italy, Spain and Portugal investments since 2007. Germany no longer needs to ‘save’ Greece to avoid their own bankruptcy. Most of those German deposits are with Italy – the least likely to fall of those four.

    In this particular ‘Game Theory’ play, Germany now holds the strongest hand.

    It’s worth noting that the UK never had such claims on Greek debt … Must have been a clever & far-sighted UK government that kept clear of those seductive sirens of debt. Guess who was Chancellor at the time?

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