Grexit Spin

Another Euro 1.5 bn payment to the IMF is due during the month of June. The Greek government, though, may have already severe problems to transfer the first Euro 300 that is due on June 5. Will the game then be over soon? Given the intransparent nature of Greece’s financial situation and the enormously accelerated soon coming from Brussels and European capitals, it may well be the case. In its most recent ‘Monatsbericht’ (Monthly Report) the German Central Bank made clear that the worsening of Greece’s economic situation is the sole responsibility of the Greek government that showed an inability and unwillingness to reform. This message is widely spread in German media and shared by public commentators who all agree that GREXIT would be the result of an intransigent Greek government that puts ideology before economic rationality. There are indications that Syriza  – it may be actually less a party as it is a collection of social movements, individuals of various camps that are united in basic beliefs – has its fair share of ideological fundamentalists who are not used (yet) to compromise. And yet, the  same holds for the Institutions, or more precisely, for the Eurogroup. The Finance Ministers of the Eurozone member states (and beyond) is a tight group of power-trained politicians with a strong dose of market fundamentalism; moreover, this group has common interests and they are – for various reasons – in strict opposition to the Greek government. If ideological fundamentalism meets ideological fundamentalism the outcome can’t be win-win. As it is, the ideologists of the Eurogroup hold the power in this game, and it seems as they accept only total surrender. The more so, as they are fully aware that the two other Institutions – IMF and ECB – are for various reasons not in   a position to greatly compromise. German Bundesbank head Weidmann works hard to make sure that ELA from the ECB is not being increased or even getting cut. And he has a legal point, to some degree. Given that Greece is not getting its 7.2 Billion Euro tranche from the second rescue package, the government makes use of ELA by selling T-bills to Greek banks who then refinance themselves with the ECB. This is monetization of public debt, even though it is monetization as a kind of emergency policy as the Institutions no longer provide funding and private capital markets are closed for Greece.

Weidmann and others know exactly that the non-compromise makes the ECB do things that are very much at the edge of legality, and so does the Eurogroup. In political terms it would be convenient if the ECB would pull the plug, and actually this may happen. Grexit by technocratic decision-making.