By forcing Syriza into a spot from which it must undertake a humiliating climb down to avoid disaster, the Eurogroup took its brinkmanship to a new level, writes Stratfor, the Texas-based global intelligence company.
A disagreement over vocabulary is the latest threat to the integrity of Europe’s monetary union. Two sides are discussing a similar compromise, but neither can find words acceptable to all parties. On one side is a “radical” political party voted into power after campaigning on change; on the other, an establishment terrified of setting new precedents, starkly aware that any concessions granted will embolden similar parties elsewhere in Europe. The former, Greece’s Coalition of the Radical Left, or Syriza party, must be seen as different from the party it replaced. The latter, the institutions that represent Greece’s creditors, cannot be seen as caving to Greece, for fear of a universal debtors’ revolt. The debtors need vocabulary that indicates a new deal. The creditors need a continuation of the status quo. Syriza wants to be seen as having negotiated a new “bridging agreement,” while the creditors want an “extension” of the existing bailout. This is the battlefield upon which the Eurogroup’s second meeting broke down on Monday.
After the meeting, the Europeans delivered a statement showing that enough is enough. Europe’s leaders have been watching for two weeks as Greek finance Minister Yanis Varoufakis has captured the imagination of the world’s media and apparently earned heartthrob status, undertaking a grand tour of Europe’s capitals clad in his leather jacket. He has bested seasoned interviewers, directly responded to surprised critics on Twitter, and wooed economists with engaging talk of GDP-linked bonds. And all the while, he has been talking up the great game that was afoot, describing the posturing and brinkmanship underway from both sides and reassuring his audience that this was all just for show, that a negotiated compromise would surely be reached. On Monday, the Eurogroup delivered a contrary statement: We’re not posturing; request an extension by Friday, or face the consequences.
In this confrontation, words abound. Varoufakis suggested he was willing to use a phrase other than “debt haircut,” since it seemed so unpalatable to German voters. For their part, the Germans are addressing Greek antipathy with the troika — the European Central Bank, the European Commission and the International Monetary Fund, which have been influential since the outbreak of the euro crisis — by no longer using the term, referring instead to “the institutions.”
Before the meeting, German Finance Minister Wolfgang Schauble described the Greeks as “irresponsible.” On entering the meeting, the European side had drafted a document for the Greeks to sign. The document described a Greek willingness to accept a six-month extension to the existing bailout agreement. It would have constituted a significant climb down from the Greek side. Seemingly outraged, the Greeks dubbed the document “absurd and unacceptable” and, during a pause in the meeting, leaked the proposal to most of Brussels’ press corps, including the copy that contained Varoufakis’ handwritten notes. The meeting broke down completely shortly after reconvening.
In the news conference that followed, Eurogroup President Jeroen Dijsselbloem did not mince words, saying the next move is Greece’s: If Athens requests an extension this week, the Eurogroup will meet again on Feb. 20. If it does not, the bailout agreement will expire on Feb. 28, and Greece will have to live with the consequences (including the removal of support for Greece’s scuppered Banking system). Dijsselbloem refused to speculate on what might happen if Greece failed to submit to this ultimatum. Varoufakis later stated that he was confident that the Eurogroup would withdraw the ultimatum within the next few days.
One thing is clear: Throughout Europe’s recent history of financial crises, its leaders have proved adept at generating words to resolve its problems. A problem centering on a choice of vocabulary should play to their strengths. That said, Dijsselbloem’s message signifies that Europe is playing the hardest of hardball. By forcing Syriza into a spot from which it must undertake a humiliating climb down to avoid disaster, the Eurogroup took its brinkmanship to a new level. Stratfor is still of the belief that neither side would like to see a Greek exit from the eurozone and that a delaying agreement is still eminently achievable without that taking place, but Monday’s events have moved the eurozone’s doomsday clock one notch closer to midnight.