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Rushing Towards Drachma; A Greek Drama

Let's get ready to rummm-ble!!! (IMAGE: zap2it.com)

By Preston Clive

Tick tick tick .  .  . is that a bomb I am hearing or is it the simple ticking of a nearby watch announcing the unwinding of our calendar, pushing us inexorably towards the end of the month? As is rote, the Greeks are flirting with disaster--flush with audacious behavior, determined to make their creditors look horrible and feel completely humiliated if they give Greece what they want. 

If I want to borrow your car for a month--one you happen to really need--I don't get us to this point by calling you names, publicly attacking you in front of your friends and family, and let all in our social circle feel that if I go down the outhouse pipe, it is nobody else's fault but yours, you vile, heathen villain you!

This is basically what is going on here. I've already mentioned in past columns here the abysmal diplomatic skills Tsipiras and his crew are exhibiting. You win concessions by sucking up, by stroking, by assuaging, by remaining on your best behavior; by keeping the nasty stuff behind closed doors so that those who have the power may appear to keep all the power. Even if you're not getting what you want behind closed doors, publicly castigating your creditors will get you nowhere and will only worsen your position when returning to closed door sessions. 

Now we are at the point where all but the most sympathetic are pretty well sure that the Greeks are messing things up for themselves badly. Sure, there's a certain liberation in being at the end of your rope; as Janis Joplin said, "Freedom's just another word for 'nothin' left to lose," but unless you want to insure that you remain there in the junk-heap for way too long, social skills are essentially required.

This has of course turned into a super-high stakes game of chicken between the Greeks and the Eurozone. Greece, in an effort to appear conciliatory and willing with the observing press and public, has proclaimed today that is is going to submit an extension request to extend a "loan agreement," quotes used advisedly, as the wording does not rhyme with "bailout program." That is what the EU is waiting to hear. When pressed for further definition of what it is they are going to request from their creditors, the following reply was the answer:

 "Let's wait today for the request for an extension of the loan contract to be submitted by Finance Minister Varoufakis," Government spokesman Gabriel Sakellaridis told Antenna TV when asked if an initial draft text rejected at a meeting of euro zone finance ministers this week would form the basis of the proposal. "All along deliberations are going on to find common ground. We want to believe that we are on a good path. We are coming to the table to find a solution."

The Germans are--naturally--not impressed. Especially since they have just been likened to Nazis by a hi level Greek Syriza politician.

Remember--those old enough to anyhow--back during the Monica Lewinsky scandal when then-President Bill Clinton answered the court with the rejoinder "It depends on what the meaning of the word 'is' is," when asked why he said to the country and the world, about Ms. Lewinsky, "There's nothing going on between us," and the English language essentially turned into a word game of Mad Libs from the briefest of moments when in front of the press?

We are basically at that point now with Greece and their EU creditors, when discussing What It Is They Are Even Discussing In the First Place. As the Washington Post points out

For the second time in a week, talks between Greece and Europe have broken down over the semantics of whether a short-term bailout would be an "extension of the current programme as an intermediate step" or an "extension of the current loan agreement, which could take the form of a four-month intermediate programme." The first is what Europe wanted, and the second is what Greece would have accepted. Now, it might seem silly that a disagreement over the order of the words "intermediate" and "programme" could force Greece out of the euro—aren't they just a thesaurus away from a compromise?—but this is a real political problem. Both sides want a deal, but neither wants the other to be able to say they got the better of it. So their rhetoric is hardening, and the game of chicken is still on.

The differences are profound. An extension of the current "programme" means a continuation of the painful measures loathed by the Greek people by wrapping a loan extension into the larger framework of austerity that the fresh minted Syriza government of Tsipiras was elected to do away with. An extension of the current "loan agreement" is an injection of cash sent over to keep the banks operating above water, with program details to be worked out later on--maybe like 2075. 

This game of "Chicken" could well advance to a point where both parties smack right into the other and knock the both down for the count. It may even theoretically be, with the Greeks running a primary surplus, that it makes sense to tweak a few of the measures in the austerity program thwacked onto the government--a program, incidentally, that the Greeks are treating as though formally and officially null and void simply via the nature of national elections. (They have famously already turned down bailout money because they claim the program no longer exists.) But they have made it flat out impossible to get what they want. Now the Eurogroup has given them until this evening to change course... time is running out in this game, and Europe has dug in their heels. 

If things truly do fall apart without any reasonable movement in any direction, MarketWatch illustrates an aspect of a possible scenario; it raises the interesting specter of Greece stemming the hemorrhaging of outgoing bank cash via a "run" via the instrument of capital controls. Once vilified, these controls are now accepted as a vehicle to stem financial crises throughout the world, and are approved, for example by the IMF. If the Greeks fall back on the printing presses and start cranking out New Drachma, and there is a disruptive outflow of capital, capital controls would almost certainly be on the table (a la Cypress).   

We may well see this happen, however remote the possibility.

Preston Clive

2/18/2015***