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The Eurogroup meeting today is likely to be a crucial stage in the run–up to the expiration of Greece’s programme at the end of February. Recent rhetoric suggests Greece wants to arrive at an agreement - but on Greek terms. Some commentators liken this to a game of chicken to see who gives way driving along the middle of the road, who blinks first etc. However, the balance of forces is actually rather different.
The right analogy is a game of chicken between a Fiat 500 and a 50-ton `main battle tank’ - the relative weights are roughly comparable to the economic weights. The drivers of the Fiat may be concerned that they will run out of fuel even if they get past the tank. But they should discover soon – perhaps even this week – that the designers of the tank hard-wired in a very big bazooka and have pre-programmed it with an automatic firing sequence that the current crew members cannot change easily or quickly. So “there is no alternative“ (TINA).
Greece is not without attractive bargaining chips such as improved relations with Turkey and thus solutions to the problems of Cyprus; genuinely tackling the problem of tax payments in Greece. Both should warrant support – especially from the whole of the European Union for improved relations with Turkey. In return, the [EFSF/ESM] programme could be enlarged to buy out the ECB’s Greek bond holdings and then apply the same generous 10-year grace period on interest and capital that has been given to the EFSF’s existing loans.
The drivers of the Fiat 500 need to consider their tactics very carefully as the votes of 10 million cannot bind the other 400 million in the euro area – especially if it amounts to a challenge to the entire political construction of the euro area. In the end, a de facto Greek exit from the European Union itself may become the more likely result.
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