No, you haven’t been transported back to 2010 or even last week… there is just still no end in sight to the circular fight between Greece and the European “troika” of European Central Bank, International Monetary Fund and European Commission.
So as a refresher, here is what we’re fighting about this time: The loans from Greece’s 2010 bailout have come due. Without some form of loan extension, Greek banks will run out of collateral in about 14 weeks, according to JP Morgan (JPM).
Greece would like to use this opportunity of extension to renegotiate its bailout; Europe would prefer to give Greece some extra money as an extension of the old deal.
So in a sense what we’re fighting about is whether Greece gets a new agreement or more of the same. Business Insider has a whole article about how those two words, “new agreement,” are central to the whole thing. Greece says it’s adamant about the new deal because it’s the only way they can encourage economic growth while still repaying their loans. For example, Greece would like to maintain its current surplus rate at 1.5% of GDP while the EU is calling for Greece to increase budget surplus to 4.5% of GDP.
If you don’t know the arguments of the two sides just yet, don’t worry – you probably have a few more weeks to learn them. According to Yahoo Finance’s Rick Newman, we’re not likely to see a deal any time soon. Why? Because Greece still has 14 weeks before it runs out of cash. If history has taught us anything, it’s that these negotiations aren’t resolved until the 11th hour. The end of February “is going to be the pucker moment. We will know then if Greece is going to go along with these demands for austerity that Europe insists upon in order to get the next amount of money. If they don’t do that, that starts in motion the next thing, which is will Greece run out of money?”
If that happens, then mark your calendars for late March, because that’s when we’re in for the next round of déjà vu – namely, will Greece default and exit the Euro Zone? This time around, Europe is in better economic position than last time. Newman put it like this in the video above: “The other countries in question such as Spain and Portugal, they are in better shape and it seems like Europe can just deal with it better then it could a couple of years ago. So what I think that means for Greece is that Europe is probably feeling a little more embolden[ed].” And that means Greece has a lot less leverage.
Greek Finance Minister Yanis Varoufakis gives a press conference February 16 after unsuccessful talks between Greece & its European creditors.
One person who may not have gotten that memo is Greek Finance Minister Yanis Varoufakis. He has in many ways emerged as the rock star of these negotiations. He hasn’t been shy about speaking to the media and even wrote an op-ed on the negotiations that appeared in Monday’s New York Times, coincidentally the day Greece and Europe were slated to resolve their differences and failed.
Varoufakis has a background in game theory – something that, while complicated, has been a favorite tool of pundits when dissecting these negotiations between Greece and Europe. In his own words, “Because I spent many years during my previous life as an academic researching game theory, some commentators rushed to presume that as Greece’s new finance minister I was busily devising bluffs, stratagems and outside options, struggling to improve upon a weak hand.”
He quickly rebuffs this statement, saying “Nothing could be further form the truth.” The reason, as he sees it, is motives. In game theory applied to say, gambling , the motives are clear: Each party wants to win money. In these negotiations, not so much. Greece sees its role in these talks as nothing less than re-writing the social contract of Europe.
To understand this, you might want another refresher: In December, the ‘radical’ left wing party Syriza won Greece’s election in a historic victory. It was that election that nabbed Varoufakis his current job. So in many ways, this government’s negotiations are about more than defending the Greek economy; they’re defending the liberal principles that got them elected. At least that’s how Varoufakis presents it.
In his words: “How do we know that our modest policy agenda, which constitutes our red line, is right in [philosopher Immanuel] Kant’s terms? We know by looking into the eyes of the hungry in the streets of our cities or contemplating our stressed middle class, or considering the interests of hard-working people in every European village and city within our monetary union.”
If you thought that was laying it on thick, here’s his closer: “Europe will only regain its soul when it regains the people’s trust by putting their interests center-stage.”
But despite all the grand standing, Newman is confident that Greece will be the party to cave in these negotiations… but just enough to keep kicking the can down the road. “Greece’s economic condition is getting slightly better. The rest of Europe’s economic condition is slightly improving,” he said. “This is the strategy, kick the can down the road. Just get better enough so we’re out of the woods.”
But bottom line? “Greece will blink first,” said Newman.
