The ‘Troika’ goal is not Grexit from EMU but Syrexit from Greece

Unless timely financial assistance is forthcoming, Greece will default on its payment and this might trigger a process of reactions and actions .

In January, Greece elected a left-of-centre political party, Syriza, to office. Syriza has pledged to repudiate the debts it owed to international creditors and relax the fiscal austerity programme it had been subjected to by the ‘Troika’ of institutions – the European Commission, the International Monetary Fund and the European Central Bank. Greece has a big debt burden and its economic growth too had wilted under the severe austerity programme. Overall unemployment rate in Greece is over 25 percent, the youth unemployment rate is above 50 percent, and the Gross Domestic Product has contracted 25 percent in the last four years.


Matters have come to a head because Greece has several loan repayments, particularly to the IMF, falling due in June and there is no money. Unless financial assistance is forthcoming in a timely fashion, Greece will default on its payment and it might trigger a process of reactions and actions resulting in the possible exit of Greece from the Economic and Monetary Union in Europe and possible flight of capital from Greece. Creditors are insisting on a new round of fiscal austerity measures and the Greek government is resisting. In turn, Greece is pressing for a comprehensive debt relief programme as, otherwise, the country would continue to remain bogged down with high debt servicing costs. Creditors are unwilling. Matters have come to a head as another payment is due to the IMF before the month-end. There is a summit meeting of EU Heads of Government on Monday evening in Brussels. The points below shed light on this matter.

One, it is clear that EU Governments and IMF (with US backing, of course) do not want to do a deal with this government in Greece. America, for sure, did not like Varoufakis’ “Global Minotaur”. It is reasonable to assume that they – all of them – want to see this government in Greece in go, actually. They do not want to confer success, if they can, on a Marxist-Socialist government. They suspect that it might set off a chain reaction and lead to revival of socialism in Europe. Ashoka Mody, formerly with the IMF, notes that structural reforms are a code phrase for reducing wages and weakening employment contracts—as they are in the Greek context.

Further, Syriza’s success might mean a greater foothold for Russia in Europe. America and its European allies are frightened of the possibility. Hence, not handing Syriza any victory is the core motivation behind the charade of negotiations.

Two, however, ejecting Greece now from EMU now would actually make Syriza martyrs and they may come back with a more thumping majority, and more powerful. Further, ejection might throw up unintended consequences in Europe. For instance, does ejection evoke fear and greater compliance in Spain, Portugal and in Italy? Or, does it embolden radicals? Local elections in Spain and Italy did not go well for incumbents who are, supposedly, pro-EU and are good boys.

Three, Ms Merkel probably has a slight inclination to do a deal since she might be correctly worried about the potential slow unravelling of EMU (and the EU itself), the political consequences of Greece out of EMU and EU too and, lastly (but not the least), what if the Greek economy thrives in two to three years? That would be a major negative advertisement for EMU. Matter of time because others take to their heels.

At the core, she might be uneasy about what is happening in Ukraine even though she has gone along with the US. A Greek exit would complicate matters further now. Lastly, she would not want to be the one German leader under whose watch, European integration began to unravel. I think Philip Stephens of FT got her compulsions quite correct. Perhaps, within the Troika, she is the stumbling block to ‘kicking Greece out’. But for her, it might have happened sooner.

Four, So, what has been the EU (or, Troika) goal all along since Syriza came to office? Keep Greece in the Eurozone by doing the bare minimum while working to make life so difficult for Syriza such that Greek people come to realise that Syriza is the stumbling block for a deal. Make Greeks feel that Syriza stood between them being part of Europe and being castaways. Has it worked? Probably, it has not. But, the goal has not changed.

Five, Because it has not changed and because Tsipras has understood that goal very well and has, in the last several weeks, played his cards rather well, the Greek people want the best of both: they want a deal to stay in the single currency and they are happy with Syriza and Tsipras.

Some of Tsipras’ moves include his well-chosen remarks to provoke EU creditors, his Op.-Ed in Le Monde, sending Yanis Varoufakis to Berlin to give a speech (how many current or past Finance Ministers in the world could have given such a speech?), to use the remarks of Michael Noonan (Irish FM) as an opening for Varoufakis to write an op.-ed in Irish Times and this speech by Varoufakis in the Eurozone Finance Ministers’ gathering on Thursday. There could be others but I can think of only these.

Six, So, what would happen on Monday at the EU summit? Actually, the dice is loaded against the Troika emerging winner in the perception battle. To a large degree, the Syriza has done a better job of projecting itself and Greece as the victim or the underdog rather than a recalcitrant adolescent criminal, unable or unwilling to mend his ways. So, kicking them out on Monday (actually or, in effect, by prescribing impossible conditions) will seal their martyrdom and then what happens next goes largely out of the control of the EU.

Seven, out of hubris and arrogance, some or many European leaders are defiantly calling precisely for that outcome. But, perhaps, they do not have Ms Merkel on their side.

Eight, so, what will happen on Monday is that a ‘deal’ will be struck to keep Greece within Europe, until the end of the year. It is another “extend and pretend” chapter in the whole saga. The aim is to buy time to see if they could get Syriza out of the office by then, by engineering further economic discontent and deterioration in Greece. Or, there are always other sinister means available, if needed.

Nine, since the Troika has already lost the PR battle in the last month or so and since it has to keep Greece within EU for now, it is for them to relent a bit in their conditions without having to relent too much. So, the challenge before them on Monday is to appear uncompromising while compromising slightly to bait Syriza into agreeing. It will be a tough act to pull off. But, for exposition purposes, we will assume that they manage to do so.

Ten, why would Syriza agree to it? They should know very well the purpose of the “extend and pretend” deal. It is to see them out of office in some manner or the other. Why would they agree and why would they not call the EU bluff? I do not claim to know the answer but I can think of two reasons why they may yet go along although there is compelling logic for them to walk away, especially since they know the end-game or goal of this exercise.

Eleven, one is that we do not know what assurances, if any, Tsipras got from Putin on his recent visit to Russia. That is a crucial factor. If they were cast-iron and concrete, then that would influence their decision to stay in the game or walk away. But, was Putin in a position to offer such assurances? We do not know how secure economically Russia is, now, to offer generous financial assistance to Greece.

Perhaps, Putin might advise them to stay in the game for as long as possible until he is able to get the better of the storms he is facing in his own backyard. My hunch is that he is succeeding in that particular effort but I could be wrong. So, waiting it out or dragging it out might be his advice, for now, rather than concrete assurances. Hence, that could be one reason for Tsipras to play along.

Twelve, second, after all, the Greek want to stay in the Union and in the single currency. The club, right or wrong, remains prestigious. The emotional cost for the Greeks of being asked to leave now might be too high and Tsipras might be reluctant to risk his popularity on an exit now.

Thirteen, third, they might be genuinely unsure of how severe or serious the economic fallout of leaving would be. After all, global economic and banking levers are with the US and Europe.

Fourteen, so, Tsipras would go along with the charade, reluctantly or otherwise. His goal is to stay in the game with Europe, stay in office, get concessions here and there, hope for an economic turnaround and if there is a slight improvement in the economy engendering some confidence, then he can take the risk of walking out.

Fifteen, EU goal, to reiterate, is to keep Greece within Europe (largely on their terms), not grant too many victories to Syriza and to kick them out of office in Greece eventually.

Sixteen, whatever happens in Brussels on Monday will not be the end. It is one more chapter because both sides have not achieved their goals yet and are, in fact, far from it. If anything, the EU has suffered ‘setbacks’ in the last month or two, in its goals. Syriza and Tsipras, personally, have become more popular among Greek voters.

Seventeen, In sum, on Monday, EU will present a deal, which they will claim as a victory for their approach, while yielding some ground, on balance. Syriza will accept it.

Eighteen, in the long run, it is both cynical and realistic to assume that the odds of EU succeeding in its ‘goal’ are narrower than that of Tsipras succeeding. The Greek economy will not have much hope under the EU plans. Further, there could be unintended consequences for the rest of the world if the EU ‘succeeds’ in its goal.

Nineteen, the world that some of us grew up in and took for granted as ‘idyllic’ between 1980 and 2000 (because we did not know enough) is slowly unravelling. Most likely that the outcome in Brussels on Monday (or in the early hours of Tuesday) does nothing to reverse the unravelling and only pushes it along further.