Tsipras makes Merkel an offer she can’t refuse

How should we interpret this week’s volte-face by Tsipras and the Syriza government in approving austerity concessions to the Troika that had been specifically rejected by Greek voters in a referendum less than a week before? Short term, this would seem to provide an opportunity for celebration for creditors and financial markets in that the Greeks will have to repay all their debts and perhaps more importantly will not offer a precedent to other indebted nations to demand debt relief and therefore open the floodgates to unlimited QE and debt monetisation so feared by the northern block.

This reprieve however would be both temporary and illusory as it fails to address the political or economic reality of the situation. The most obvious of these is that Greece is bust and chasing it into the grave for the last sou will make it less, rather than more likely to be able to pay what it owes, let alone become a functioning and contributing member of the EU. Politically, it is also counter-productive for the EU to be shown as a rapacious creditor in league with a politicised and conflicted ECB to use weapons of mass financial destruction to terrorise the Greeks into submission. Without a debt relief, how long do you think Tsipras and his Syriza party will last and if not them who – Golden Dawn or some other extreme fringe, and then what?

At face value, the concessions approved last night by the Greek legislature is at best another attempt to kick the can down the road. While agreeing to cut government expenditures, including pensions and defence along with improving tax collection rates are fairly uncontentious, the current plans also include a number of counter-productive proposals including heavy increases in consumption taxes (eg 23% VAT on restaurants and increased ‘luxury’ taxes on recreational boats on anything longer than a dinghy) as well as increases in corporate and tonnage taxes along with the removal of Island tax breaks. How this is expected to get more tourists to want to go on holiday to Greece or more ships to locate there is a mystery to me and seems to be blind to the simple fact that these industries are mobile and will just go elsewhere and thus further compound the revenue erosion. Does anyone in their right mind actually believe the current commitment to stick to a primary surplus target of 1% for this year rising to over 3% from 2017 is achievable? Look at some of the other proposals and things get even more ominous. Consider the proposed amendments on insolvency laws to get debtors to pay up loans or ‘consultants’ on how to deal with bad loans or the opening up of restricted professions such as court bailiffs. Throw in the asset privatisations of the electricity grid company, regional airports and shipping ports and the Greeks will be little more than rayahs in their own land. https://www.youtube.com/watch?v=rRBPS3o_IvU . Germany may be obsessed with its hyper-inflation history, but it seems to have also forgotten the dangers of leaving a nation without hope or self-respect.

The problem with the above scenario however, is that it doesn’t explain why Tsipras would commit political suicide agreeing to concessions that would not work anyway. It also fails to recognise the wider geopolitical issues at stake which need Greece to stay in the western sphere of influence and would happily sacrifice Germany’s aversion to sovereign debt monetisation to achieve it. Greece has long existed on a number of fault lines (geological, ethnic, cultural, political and religious) and this has been reflected in its complex politics. Add in gas politics of Gazprom cancelling South Stream in favour or a new route through Turkey and Greece and the EU’s domestic spat over debt relief has acquired a more serious geo-political dimension. Tsipras has obviously been playing this card with his meeting with fellow orthodox Putin and the US are concerned enough to put pressure on Europe.

The US therefore needs a deal to keep Greece inside the tent, but knows that Germany is resistant to debt monetisation. As befitting the EU and in the best tradition of the Godfather, they need an ally on the inside that can propose the deal to both parties while furthering its own interests //youtu.be/fuWkcKbBQkg and this is where the French come in. At the last moment, the French have sponsored the Tsipras’s apparently generous concessions which will form the basis of discussions at tomorrow’s broader EU meetings. Debt relief is not explicitly included, but the IMF ‘leak’ that Greece debt is unsustainable and needs restructuring (ie relief) was incidentally released and not accidently. Tsipras must know that his concessions in isolation would destroy Syriza and resolve nothing, so his participation must therefore have included broader assurances also on debt relief. Germany no doubt suspects that its red line on sovereign debt monetisation may be assassinated at this meeting arranged by its ally and hence some of the rumoured hostility to the plan even though at face value Tsipra has conceded on virtually everything barring a tribute of children. In many ways, Merkel is being manoeuvred into an impossible position. Reject IMF evidence of the need for debt relief and drive Greece into default and her dream of European unity starts to look pretty shabby. Agree to it however, and a principal will have been conceded which will inevitably turn the Eurozone into a transfer union, but without political responsibility or restraint which may hasten calls for a northern block.