Getting ready?

Outstanding payments to the IMF were made; the ECB got its cheque, and all this thanks to a repeat of previous roundtrips where money from one creditor coffer moves to another creditor coffer. At the same time the Greek Parliament moves along with ratifying the creditor program. All good then? Not at all, as critics from left to the right argue. Not at all, as Tsirpas moaned, and Schäuble argued over the weekend. Critical parts of the program are more of the same, and there is no good empirical reason why more of the same medicine should out of the sudden improve the state of the patient. Chances are that the patient may suffer more. The primary budget surplus targets agreed upon are neither realistic nor can they be realized with generating further damage, in economic as well as in political-social term. Eichengreen/Panizza showed in a comparative study in regards to the debt reduction target of the Fiscal Compact that long-running primary budget surpluses are possible but only under very specific political and economic circumstances:”Focusing on political variables, we find that surplus episodes are more likely when the governing party controls all houses of parliament or congress (its bargaining position is strong) and in countries with proportional representation (which can give rise to encompassing coalitions). We also find that left-wing governments are more likely to run large and persistent primary surpluses”. In economic terms it seems that a thriving global economy is helpful to overcome domestic demand-shortcomes. It is arguable whether both categories hold today for most of the Eurozone economies. It seems only fair to state that Greece is not benefitting from such external conditions.

Still, despite all the rush put on Greece by the creditors it is also a fact that Greece is getting some breathing space, and now it is all about following a two tier-strategy, as recently Charles Wyplosz argued. He made the case that Greece should carefully start preparing GREXIT, not in order to actually leave the Eurozone but to get prepared for the unavoidable next round of negotiations when the next program fails. And fail it will. Unlike this time when Greece was not up to the game of chicken such a move would change the cards of Greece. Andy, preparing for Grexit may be just the option that ends up in a new equilibrium as this option is identical with the the preferred option of Germany. Rather then preparing without having the intention to leave the game may end up in a Greccident. And yet, accepting its fate like a easter lamb is not a way to go, even though at this point in time this seems to be the attitude of the Tsirpas camp that provides the ground for new elections in order to regroup the left-austerity camp.

Greece is in a catch-22 situation. Preparing for Grexit and avoiding Grexit by any means , both are options that come with high costs. No easy choice.