The global financial system desperately needs a big, bloody sovereign default – -a profoundly disruptive financial event capable of shattering the current rotten regime of bank bailouts and central bank financial repression. Needless to say, Greece is just the ticket: A default on its crushing debt and exit from the Euro would stick a fork in it like no other.
But don’t count on the Greeks. Yes, their new government does have a strong mandate to throw off the yoke of its Brussels imposed bailout and associated debt servitude. Were the Syriza government to remain faithful to the raison d’etre of its wholly accidental rise to power, the task of busting the misbegotten euro project would be its own special form of god’s work.
But notwithstanding Tsipras’ resolute speeches (‘We will not accept psychological blackmail’) and Varoufakis’ elaborate game theory maneuvering and hair-splitting word games, the odds are against a regime-shattering ‘grexit’ event in the immediate future. If it does happen, it will be the result of political miscalculation among the parties, not the policy agenda and will of the new Greek government.
The problem is that to the extent that Syriza has a coherent program – -and that’s debatable – -it amounts to a left-wing Keynesian smorgasbord that will eventually drive the Greeks to clutch at any fig leaf of compromise which enables them to stay in the Euro. Unlike the Germans, Varoufakis & Co have no scruples whatsoever about central bank financing of state debts, and see the ECB as the ready-made agent of just that form of financial salvation – -for themselves and the rest of Europe, too.
So notwithstanding the current fevered tensions between Greece and its paymasters, nearly every issue of difference between them can be finessed – that is, given enough double talk, weasel words and kick-the-can windage. Certainly wordsmiths in the wee hours of the morning can find phraseology that bridges the difference between an ‘extension of the current program’, as insisted upon by the Germans, and the Greeks’ most recent proposal to ‘proceed jointly to a successful conclusion of the present arrangements’.
Even on core substantive issues like the size of the required primary budget surplus, the target number of state employees, minimum pensions for citizens with minimum incomes, the precise slate and schedule of the state properties to be privatized – – all can be worked out during showdown negotiations. After all, these issues are all about splitting numbers and fudging timelines – – the very thing that politicians were created to accomplish.
But what can’t be compromised is the one thing that ultimately counts. Namely, a substantial default on the nominal level of Greece’s staggering debts.
On that score, the EU politicians and bailout apparatchiks have taken themselves hostage. Not a single government outside of Greece could tolerate a capital call to make good on their bailout fund guarantees. That would fatally embarrass Mrs. Merkel, cause the fall of the French and Italian governments, leave financial cripples like Spain, Portugal and Ireland rampaging for relief and bring populist radicals out of the political woodwork from one end of Europe to the other. In short, to save the euro from the purported ‘contagion’ effects of sovereign defaults, the geniuses in Brussels have effectively strapped political time bombs to their collective chest. The Greek debt guarantees are promises that dare not be activated.
This post was published at David Stockmans Contra Corner on February 19, 2015.
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