Alexis Tsipras must make sure that his people do understand that Greece has not been trampled upon and that any final agreement has lost the harshness of the creditors’ proposal. The difference between the creditors’ demands and the conditions finally accepted by his government show the staunch determination with which the Greek negotiators have defended the national interest.
He is well aware that some European leaders are firmly committed to keeping Greece in the Eurozone, which probably explains the resolute –and somewhat overblown – expressions of defiance coming from the President and mostly intended for internal consumption only. This is a tightrope performance that keeps markets on tenterhooks, hardens public opinion across the Eurozone, and –if there is a happy ending- will make life much more difficult for politicians. They will have to persuade their parliaments and public opinion that both the cost of the agreement is justified and that the incumbent Greek government can be relied upon to hold up its end of the deal (while many no doubt recall the recurrent failure of its predecessors to comply).
No one seems to dare touch on this other point, however, and European politicians would be well advised to have a good narrative at hand: the market and institutional structure of Greece is way below other members of the eurozone. The situation is bound to be untenable unless the country goes all-out to converge –an effort previous governments never attempted- but this will be an imposition in many ways for the rest of the Eurozone for a long time. Overcoming the current crisis does not mean closure of the Greek dossier.
This tactical approach has been the landmark of this negotiation. We don’t know at this point –days away from a deal or a breakup- whether it will work, namely whether a point is reached where both President Tsipras and the European leaders can sell the agreement as reasonable to their respective constituencies.
All this is about politics. Difficult enough. But analysts with an economic perspective can lead us astray. Minister Schäuble [quite often] will harp on the need for yet more austerity at a point where fiscal, legal and institutional reforms should be pushed forward. Martin Wolf [FT, June 17] and many others still shed tears for the major mistake of 2010 –overlooking the need for a major debt haircut- and call for yet more debt relief. This is taken to an extreme by Münchau, [FT, June 15]: accepting the creditors’ proposals would be “suicide” and by far the best outcome is Grexit. And this for several reasons, the first and overpowering being that “Greece would default on all official creditors.” Münchau suggests that the political fallout for the creditors would persuade Merkel and Hollande (his quotes) to backtrack and renegotiate. Such a show of strength by the small debtor would bring the creditors to the table and get them to gulp down the debtor’s terms.
I don’t think of Grexit as an option, but it could well be the end result in the regrettable case of a total breakdown. Let us not mince words here: getting out of a monetary union may bring in its wake months or years of economic distress as well as expectations fraught with uncertainties. My own feeling is that President Tsipras is well aware of the chaotic circumstances brought about by a monetary transition and would wisely skip it on his watch. I guess he is not moved by the point made by some that chaos is after all a passing disturbance –and like drunkenness, in Churchill’s well-known remark, it wears off on its own.