Chaos, Fear, Panic Descend on EU’s Hallowed Halls of Power

from Wolf StreetYou just killed the Troika.”

According to Greek private broadcaster Mega TV, “You just killed the Troika” were the parting words that Eurogroup Chief Jeroen Dijsselbloem whispered into the right ear of Greece’s new Finance Minister Yannis Varoufakis at the end of what was clearly a tense meeting. Varoufakis’ response was a monosyllabic but no less emphatic “Wow.”

While Dijsselbloem’s statement verges on hyperbole – it’s hard to imagine that the Troika’s dreaded three-headed hydra could be slain by just a few harsh words from a Greek economist-turned-politician – it’s nonetheless a fair reflection of the atmosphere of chaos, fear and panic that has descended upon the EU’s hallowed halls of power since Syriza’s election victory last Sunday.

For the first time since the global financial crisis buffeted Europe’s southern shores, in late 2009, a country has voted in a government that refuses to play by the Troika’s rules. In just its first week of power Syriza provoked the Troika’s ire a number of times, by promising to raise the country’s minimum wage and state pensions as well as put a halt to much of the former government’s privatization program.

In fact, according to a statement by Varoufakis, Greece’s new government no longer wants to even have anything to do with the Troika. As the Greek daily Tovima reports, the message was clean, clear and aggressive:

“We do not recognize the troika because it is extra-institutional, nor will we debate the previous program because the Greek people voted against it”.

Breaking the Rules

It’s not just the Troika’s rules that Greece’s new government has been breaking. Since its electoral victory, Syriza has come out all guns blazing, with little time or regard for formalities, such as wearing ties, or pleasantries, such as kneeling before the all-powerful, all-seeing Troika.

Firstly, the party shocked most analysts by choosing the Independent Greeks, a right-wing anti-austerity party, as its coalition partner. Then, on Monday, Alexis Tsipras’ inaugural day as Greek PM, the first foreign official with whom he chose to meet was the Russian ambassador to Greece, Andrey Maslov. Shortly after, his government threatened to veto the latest round of EU sanctions against Russia, ostensibly in retaliation for not being consulted on the matter. As if that were not enough, by the end of the week he had released a statement questioning the wisdom and moral legitimacy of the EU’s support of the Kiev regime:

We should not accept or recognize the government of neo-Nazis in Ukraine… We in the EU should not give preference to changing borders, but must respect the position of the peoples, who have decided to create a Federation within the state… The EU must change in order to survive; the EU lacks democracy, and citizens do not believe that their vote can change policy.

The message to Brussels could not be clearer: if Greece needed a plan B, it would find one, and if it meant cozying up to the EU’s archenemy and long-time Greek ally, Russia – and in so doing shattering the EU’s already fragile anti-Russian consensus – then so be it!

Good Cop, Bad Cop, Greek Style

One of the more entertaining aspects of the past week’s unfolding drama was the sight of Tsipras and Varoufakis employing – whether intentionally or not – the classic good cop, bad cop routine against the Troika, an institution that had just about perfected the practice in its dealings with bankrupt nations (with the IMF, ECB and Commission regularly alternating roles). Greece’s adoption of similar tactics has helped sow confusion in the ranks of Brussels apparatchiks, with many struggling to double guess Syriza’s actual intentions.

For example, 24 hours after Varoufakis had likened the prospects of bankrupt Greece ever paying back its debt to the Santa Claus story, Tsipras stepped in to calm fraying Eurocratic nerves. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole,” Tsipras wrote in an e-mailed statement to Bloomberg. “No side is seeking conflict and it has never been our intention to act unilaterally on Greek debt.”

The final point – that the new government will not take any unilateral action on its debt – has become Syriza’s de facto official position. Meant ostensibly to reassure already jittery markets, it could be its ultimate undoing. After all, it sends the message that in the event of a do-or-die confrontation with the Troika, the Greek government will be the first to blink (and then, of course, die).

Unless, that is, it’s a bluff!

Catch-22 Galore

Second guessing the real intent and potential reactions of each player in this unfolding Greek drama – the Greek government, the separate members of the Troika, the German government, other European creditor nations, and of course the international markets (read: U.S. and European banks and hedge funds) – is an almost impossible task. The situation is precariously fluid, and a misplaced word here or a misunderstanding there could have enormous repercussions for all involved.

The fact that just about every policy avenue ends in a Catch-22 cul-de-sac does not exactly bode well. For example, if Brussels were to give in to enough of Greece’s demands so as to placate Syriza, it would almost certainly foment the support of protest parties in Spain, Italy and France, while of course driving the final nail into the coffin of many of Southern Europe’s traditional political parties – a fate most of them thoroughly deserve. It would also no doubt bolster euroskeptic movements across the Eurozone’s core nations.

If, on the other hand, the Troika chose to punish Greece by ejecting it from the Eurozone – a measure that according to some “experts” is not only manageable but almost unavoidable – the knock-on effects are almost impossible to predict. Chances are, though, they would not be pretty. Granted, Europe’s banking sector is far less exposed to a Greek default now than it was four or five years ago – thanks to the fact that most of its Greek debt has been generously removed from their books by unsuspecting European taxpayers. However, with the official sector now accounting for roughly 75 percent of Greek debt, a disorderly Greek default could have very serious consequences for European institutions, most notably the European Central Bank.

Anther possibility – one that was anorexic slim just a few days ago but is getting fatter by the hour – is that Syriza finds likeminded allies in the governments of a number of other Eurozone nations, including big spenders such as Italy and France. As a united front they then try to pressure a very reticent euro-core led by Germany into finally burying the austerity hatchet and loosening the purse strings – and not just for Greece but all fiscally challenged economies.

If enough pressure is exerted – and with President Obama joining the fray on Syriza’s side and the head of Lazard Bank’s Paris office, Matthieu Pigasse, calling for a 50 percent write off of Greek debt, it is certainly being cranked up – the strategy could end up achieving what billionaire hedge-fund manager George Soros has long advocated: Germany’s exit from the euro. In such a scenario the chances of the euro surviving – at least as a viable regional currency – are, to put it mildly, limited.

And so, as the plot thickens and the plotting deepens, potential disaster awaits behind each and every turn. As I’ve been warning for the last couple of years, one way or another Europe is on a slow road to self-ruination. The irony is that the mad dreamers of a single European Super State can now almost glimpse the faint light at the end of the tunnel (meaning, of course, darkness for most of the rest of us). With Europe already integrated, albeit somewhat loosely, along both monetary and financial lines, all that remains on the eurocrat’s “things to do” list is to pull off fiscal and political integration.

Yet with democracy still functioning to some degree – at least in some countries – and the majority of voters in the South less than enamored with the prospect of an eternity of austerity, while those in the North despair of even more of their wealth being transferred southwards, the closer the European dream gets to fruition, the more impossible it seems to become. And that, dear reader, is probably not such a bad thing! By Don Quijones.

After four years of inflicting economic pain and misery on Europe’s semi-bankrupt periphery, the Troika is in a lather over the political consequences of its disastrous economic policies. But there remains an overriding dilemma: “Debts that can’t be repaid, won’t be repaid.”

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