4 Feb 2015

Greece: the Samson Strategy

What happens next with Greece? The short answer is: nobody knows.

Greek finance minister Yanis Varoufakis takes his roadshow today to meet the German finance minister and Mario Draghi, the boss of the European Central Bank (ECB).

The short term issue is whether the Greek banks can go on using the emergency loan facility that is keeping them afloat. There’s a meeting today that will probably give them access for two more weeks.

But on 28 February the long-term bailout deal between Greece and the money men of the Troika runs out.

And the rules say, without a long-term agreement, Greece can’t have short term assistance for its banks.

If the short-term assistance is pulled, the Greek banks go bust. It’s that simple.

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So that puts the ECB’s finger on the trigger of an almighty crisis. But both Mr Varoufakis and Greek Prime Minister Alexis Tsipras are signed up to what is called within Syriza the “Samson Strategy”.

They will fight tooth and nail to stay in the euro. But if the ECB forces a bank run, and state bankruptcy pushes Greece out of the euro, they will not flinch.

They know that the image of a central bank collapsing its own currency, credibility and any image of pan-European solidarity would be suicidal.

So like the biblical character Samson, Syriza is prepared to push over the columns of the whole building to end what they see as their own slavery.

What Greece is looking for is a long-term relief on its 319bn euro debt. It’s given up the demand for a straight write off, in favour of a debt swap.

I haven’t seen the proposal but I understand it to mean that Greece will swap 60 per cent of its debt owed to the EU, for bonds that are paid back very long-term, and which pay no interest unless the economy is growing.

The ECB and the hardline governments in the euro see this as a covert way of getting a debt write off, which in finance is called a “haircut”.

In the word of debt, lower interest rates or longer repayment times can always be converted into the theoretical equivalent of an absolute write off.

But Syriza faces a different pressure. Unless it really contains a substantial haircut, I’ve spoken to Syriza members who believe the debt swap offer is a departure from their overall debt relief strategy.

When the new MPs arrive for the opening of the Greek parliament tomorrow, there will be backroom ructions.

Politicians vs bankers

Now the weird thing is, Samson’s strength derived from his long hair, and his enslavement was the result of getting it shaved off.

Whereas the Greeks actually want a debt haircut: if Europe agrees to it, the popularity of Alexis Tsipras — already on 70 per cent – will soar, domestically and across southern Europe.

The timetable is now critical. Even if they roll over the emergency loans to Greek banks today, there is another meeting on 18 February when this could be withdrawn.

The Greek finance minister’s whirlwind tour of Europe was designed to force the pace: nobody wants a run on the Greek banks amid uncertainty.

So it comes down to politicians versus central bankers. On the side saying “fudge it and keep the lifeline to the banks” are US President Barack Obama, Chancellor George Osborne, French President Francois Hollande, Italian Prime Minister Matteo Renzi and most European social-democrats.

On the side saying “call their bluff” – and if needed force Greece out of the Eurozone – are the central banks of Finland, the Netherlands and most probably Germany.

In the middle are only two people who can decide to get the thinning scissors out on Greece’s debt: German Chancellor Anglela Merkel and the president of the ECB, Mario Draghi.

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13 reader comments

  1. wills says:

    This is from 2012, but the events round the London Debt settlement for Germany is still relevant http://www.bloomberg.com/news/articles/2012-12-03/history-shows-why-germany-should-help-greece

  2. John Anderton says:

    Civilization has been thrust upon me… and it has not added one whit to my love for truth, honesty, and generosity. – See more at: http://www.spiritscienceandmetaphysics.com/10-quotes-from-a-sioux-indian-chief-that-will-make-you-question-everything-about-our-society/#sthash.EmjEVeW8.YRu5ujDZ.dpuf

  3. Sotiris says:

    The question is: The ECB had guaranteed all deposits up to 100,000 euros. Suppose it lets the Greek banks collapse. Won’t it have to pick up the tab?

  4. Bill says:

    The best thing for Greece would be to come out of Euro. That said, a resurgent Greece under a new Drachma could sign up with Russia, as a ‘Hub’ for her Gas / Oil, Greece would make good money, then there’s the new venture with China and India on board, with NO political connections!
    If she stays with the Euro, this could see what Varoufakis is afraid of, the loss of Greek assets to IMF stooges?

  5. Astonished says:

    When the problems for Greece first arose my view was that Greece should tell their creditors that they could either roll over the loans at a low interest rate or lose their money. Not only would this have shaken up those who lent the money but also the idiotic politicians who bailed out the banks by loading debt onto Greece to pay the banks and lenders for their incompetence in lending money to someone who could not afford to make all the repayments.
    How strange it is that the financial world believes in liquidating companies that fail through bad decisions but believe that banks, hedge funds and other financial institutions should be compensated for their incompetence.
    Do you think I have any chance of the Chancellor or the BoE reimbursing me the money which I have lent to others and for which I have not been repaid? It wouldn’t break them as it probably only amounts to a fiver in total.

  6. Frankie Wilson says:

    Surely even the Germans, the Dutch and the Finns realise that any Greek government needs to get Greeks back to work so they can pay their debts and buy northern European goods and services (Greece is a big importer of goods and services).

    Yes, by all means let’s have reforms. But they must be reforms that work and produce results, not reforms for the sake of it.

    And if bonds work and allow Greece to grow as well as ensuring that Eurozone tax-payers don’t lose out, this is one idea that can be put on the table.

    For those of us stuck in England, we’re relying on Paul Mason and his colleagues to give us the true picture of what’s happening in Greece.

    So far, Paul’s C4 coverage has been enlightening and interesting, given that it gives both the facts and figures, and also does not forget the human factor in all this.

    I think this story has a long way to go yet, and it is also highly relevant to the UK, given our own enormous levels of both state and private debt.

    I look forward to tuning in to C4 every night.

  7. Miriam Day says:

    Thank you Paul for your clarity. The vast majority of this debt has not gone to the Greek people, ‘austerity’ has demonstrably failed and – given the circumstances – the debt can never be repaid. Syriza are trying to find solutions. It is not they, the ‘radical left’ who are the idealogues here, but Angela Merkel and her acolytes . . .

  8. Jamie says:

    So are they calling trying for a haircut the ‘Delilah strategy’?

  9. shirley frost says:

    Syriza should nationalise the banks and limit the amount of money that can be withdrawn.The rich elite who have not been tax should be arrested.

  10. S. Artesian says:

    What nonsense. The only real, practical course for Greece is to repudiate the debt in its entirety. If Syriza intends to tether Greece to some sort of “pay as you grow” loan workout, they need to look around at the rest of the world and figure out what kind of growth it would take to pay the service on this debt. It will take far greater growth than is possible with the EU in recession; China slowing dramatically; Japan going nowhere like it has gone nowhere for 20 years.

    The future is devaluation, deflation, and ;low or no growth.

  11. Lee Young says:

    the establishment will not allow a left-leaning party to succeed or even appear to have succeeded. They will, however, do everything within their power to cause as much suffering to the Greek people, as is possible. Syriza would be better walking away and play the long game.

  12. Mike says:

    the short term issue you write about is phrased incorrectly – Yanis does not want more bailouts – were you not watching the Emily Maitlis car crash interview?

    The Greek people have a functioning economy with a primary budget and trade surplus – the only reason for more troika loans is to repay existing debt – debt created by private banks from thin air.

    Bring on the ‘Grexit’ and default – uncertainty for two or three years will be followed by recovery and national sovereignty – the only way Greek people can get a decent future

  13. VN Gelis says:

    The things are simple: Tsipras could go to Russia in a week, then lease naval port in Siros, (which Russia has been dying to get) cancel the Debt overnight and go back to the Drachma. That will end the EZ and put a bullet into the EU…

Comments are closed.