Andy Langenkamp is a global policy analyst for ECR Research.
(Ghostbusters!)
If there's somethin' strange in your neighborhood
Who ya gonna call?
(Ghostbusters!)
If it's somethin' weird an' it don't look good
Who ya gonna call?
(Ghostbusters!)
Ray Parker Jr. - Ghostbusters
Weird things have been happening in the eurozone. The average yield on German government bonds dipped below zero for the first time in history. Never before during the lifetime of the euro did traders speculate against the common currency on this scale. Further, a British bookmaker recently suspended the betting on a Grexit.
The ghost of the Grexit is haunting Europe. The word is that a Greek exit from the euro will spook the markets and terrify investors. All of this hinges on whether the "Grexit-busters" have the political will and the economic and financial tricks needed to prevent a new euro crisis.
The Ghostbusters had proton packs and ghost traps at their disposal to fight phantoms. The actors in the Greek drama do not possess such futuristic weapons. Yet the challenges they face are at least as breathtaking, complicated, and potentially disastrous. A cheery but harmful mascot was attacking New York in the Ghostbusters movie. Greece, which used to have a sunny touristy image associated with sun, sea, beaches, and ouzo, could create havoc in Europe.
Greece to join Sudan, Somalia, and Zimbabwe?
Greece's reality is dire. The rate of unemployment still exceeds 25 percent, while the percentage of uninsured citizens is even higher. Greece has moved backward in time: The disposable income of the richest 10 percent of the population has dropped to 1985 levels, while the poorest 10 percent are as poorly off as they were in 1980.
The Greeks have cut pension payments, reduced the civil service, clamped down on benefits, implemented several privatizations, and raised taxes. However, performance is still woefully inadequate. The country's official creditors demand more pension and job market reforms, as well as additional privatizations.
The Greeks are making every concession in an effort to buy time. They asked the International Monetary Fund for a payment extension - it was refused straightaway. Just three other countries have overdue financial obligations to the IMF: Sudan, Somalia, and Zimbabwe.
Using delaying tactics and some creative accounting, and with a little bit of help from the European Central Bank among others, Athens could manage to make ends meet until June 30th. Then what?
Compromise in the European air?
As Greeks dawdle and Germans issue harsh rebukes, we cannot rule out that the parties may fail to find a solution. However, there is still a higher chance for compromise, albeit following tortuous negotiations, because this is all about politics. Europe does have the money to help out Greece. The big problem is how politicians could sell a new bailout to their voters and limit the electoral damage. The credibility of major institutions such as the IMF and the ECB is also at stake.
Clearly, European rules are not carved in stone. Whenever it suits politicians, they will not hesitate to bend, distort, and reinterpret regulations and procedures as they see fit. They could do so now. And there are more reasons why a follow-up bailout is the most likely option.
Greek Prime Minister Alexis Tsipras has exasperated his European colleges. In some ways, however, his is a flexible and pragmatic approach. Tsipras has placated the largest opposition party by backing their presidential candidate, and he has nurtured close ties with the influential Orthodox Church - even though he is an outspoken atheist - and with the army. This could imply that Tsipras is trying to prepare for a soft landing when he takes Greece out of the euro. By contrast, we believe that he is slowly preparing the country for a deal with Europe and the IMF.
European politicians and the ECB have put on a brave front by announcing that the eurozone is well able to cope with a Grexit. The ECB alone has a Greek exposure of 110 billion euros, and official creditors will probably get less of their money back if they kick the Greeks out of the euro area than if they come to an arrangement.
Moreover, what if Cyprus - whose economy is closely linked to Greece - says goodbye to the euro as well in the event of a Grexit? The island may sit on the margins of the eurozone, but if two out of the 19 member states suddenly quit the currency, the irreversibility of the euro is no longer a given - and borrowing costs in southern euro states could soar.
All's fair in love and geopolitics
In geopolitical terms, Greece is more important than one might think. It takes up a key position between East and West and is a portal to Europe. Tsipras has flirted with Russia, and Athens is one of the weakest links in upholding sanctions against Moscow. The Greeks are also in talks with Hungary, Macedonia, Serbia, and Turkey about plans for a gas pipeline from Russia via Turkey to Greece. Such a scheme could scupper the recently reanimated initiative to set up an EU energy union.
Militarily, the Greeks are also making eyes at Russia as they negotiate the possible purchase of S-300 missiles. This is not necessarily a crazy idea - Greece already owns the associated air defense systems. In view of the Greek debt crisis, and the sanctions against Russia, it would be a strange maneuver, but it could be shrewd. After all, European politicians will be eager to counter this rapprochement between Athens and Moscow - even if it costs them. (China is also involved in Greece, and the Russians and Chinese are increasingly aiming for a strategic marriage of convenience in their rivalry with the West).
A monster to be tamed
Stories about new elections or a referendum in Greece are adding fuel to the fire now. But should these rumors turn out to be true, a pro-euro outcome could be the upshot. A large majority of Greeks continue to back the euro, while Tsipras could use an election - which he would likely win - to sidetrack hardliners in his party. This would facilitate a deal whereby Greece stays in the currency area.
The Greek finance minister claimed that the Troika's austerity regime has brought forth a "monster of a crisis." Unfortunately, European politicians do not have proton lasers and ghost traps in their back pockets. But they will probably succeed in bringing the monster to its knees with the help of backroom politics, ECB bazookas, and political arm wrestling.
(AP Photo)
