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.


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.

Follow @paulmasonnews on Twitter