Eurozone: Tactical blame game moves on

Yesterday was another day with tactical moves from all sides in the Greek crisis and a Socrates-like conclusion: all we know is that we know nothing… Day one after Greece’s default on the IMF, which officially is not called default, and the end of its bailout programme offered again plenty of turbulences. A new letter from Tsipras, speculation about a cancellation of the referendum, Angela Merkel in the German parliament, Tsipras on television, a Eurogroup conference call and Varoufakis on the internet. This is the summary yet another ‘normal’ crazy day in the Greek crisis. Early in the morning, the media reported that Alexis Tsipras had sent a letter to the Eurozone creditors, claiming that he would accept almost all demands from the creditors with only minor changes. Creditors took their time to examine it thoroughly, postponing the planned Eurogroup teleconference to late afternoon. In the meantime, speculation emerged that Tsipras might still cancel the referendum and Eurozone politicians sent mixed signals. While French Finance Minister Sapin said he was still hoping to find an agreement ahead of the referendum, German politicians closed the door for negotiations before Sunday. Both Schaeuble and Merkel voiced their irritations with the Greek government and reiterated their position that no new negotiations with Greece were possible before the Sunday referendum. Interestingly, Merkel’s official stance has changed compared with several weeks ago. She now remarked that the door for Greece was not locked and that Greece should stay in the Eurozone, though not (any longer) at any price. After Merkel’s speech in German parliament, Tsipras made a televised address to the nation, turning again defiant. He confirmed that the referendum would be held on Sunday and urged his fellow citizens to vote no, reassuring Greeks that a no would not mean a rupture with Europe, but instead a necessary step for a better agreement with lenders. Later in the evening, the Eurogroup officially refused Tsipras’ request, postponing any further discussion to after the referendum. The Eurogroup also repeated that an extension of the bailout was no longer possible and that any new negotiations would start from scratch. Finally, Greek Finance Minister Varoufakis presented his six arguments for a “no” vote at the referendum in his blog on the internet. No matter how this crisis will end, at least Varoufakis has definitely brought new transparency to the Eurogroup. His article, however, is not very substantial, five out of six argument can be summarised as “vote ‘no’ because the creditors won’t give us debt relief”. Trying to understand why Tsipras does what he is doing, the only explanation is that his letter to the Eurogroup was just another tactical move to stay ahead of the Eurozone in the ongoing blame game, rather than a serious change of mind. The answer by Merkel and the Eurogroup was a strong signal that the Eurozone will not move anymore ahead of the referendum. Even if an agreement would be possible, too much trust has been destroyed that it is hard to see that the Eurozone would believe Tsipras this time around. What if he signs an agreement? The Eurozone would not have any evidence that this time is different and that the reforms would really be implemented. All of this means that the blame game will unfortunately continue in the days leading to the referendum. The only clarity that yesterday’s events have given, is that any spectacular and unexpected new turns before Sunday should be excluded. At least some clarity. However, for those hoping for clarity after the Sunday referendum, here is our disappointing view: the mess will go on. No matter what the outcome of the referendum will be. Let’s have a quick look at what could happen. In case of a ‘yes’ vote, the Eurozone would be willing to start new negotiations quickly but probably not with the current Greek government, rather with a government of national interest or a new government after new elections. The Eurozone would probably offer a third programme, coupling reasonable fiscal discipline (without excessively ambitious primary surplus targets) with a population/growth friendly investment programme. This could have a strong power against the surging populist movements in Spain and Italy. However, what would happen if Greece would get new elections and Tsipras would win them? In case of a ‘no’ vote, of course, things would be much more complicated. Tsipras would take it as a popular mandate for new negotiations in Brussels. It is hard to see that after the last events, the Eurozone has a huge appetite for these negotiations. On the other side, however, ignoring the Greek peoples’ will would also be hard. In our view, the Eurozone would not immediately let Greece fall after a ‘no’ vote but it would be very difficult for the ECB to continue ELA, even not at its current level. Even if negotiations between the Eurozone and Greece would continue after a ‘no’ vote, these negotiations would be very likely too difficult, defiant and slow for the ECB not to stop ELA. A new chaos and eventually a Grexit in the making. The inconvenient truth on the Greek referendum is that neither a ‘yes’ nor a ‘no’ vote will quickly lead to a solution and a return to normality.