Politics is about choosing between available options. In stable social democracies like America, the choices are not all that important most of time. The parties haggle over trivial issues in order pretend there are real differences, but it is all theater. When the choices have real consequences, there’s always one option that offers the least risk to the ruling class. Politicians always seek the path of least resistance so the choice is easy. That’s why I don’t write about politics often. It’s boring. Not Canadian boring, but pretty close.
There are times when it is not boring and that’s when the choices are hard and the consequences are not clear. The Greek showdown with the EU is one of those times. The options available to both sides are all unpleasant and the consequences are mostly unknown. The new Greek government has three choices. One is they follow through on their campaign promises and refuse to accept the terms of the bailout. That could lead to a breech with the rest of Europe and a disorganized exit from the EU. How that plays out is unknown.
Basically, they have to comply with EU demands in order to keep getting loans at artificially low interest rates, along with a certain amount of debt forgiveness. Additionally, their banks get support from the ECB as long as Greece is in compliance. Take that away and Greece faces the open market for borrowing and those conditions are much tougher than the ones from the EU. Most important, Greek banks run out of cash and close down. Greece, at least for a while, becomes a barter society. How long is unknown.
The other option is they buckle and accept the terms offered by Europe. That would eliminate their credibility as a party and probably lead to wide-scale riots in Athens, maybe even a revolution. The people, after all, voted them in on the promise they would end austerity. If they don’t deliver something, their support will evaporate and who knows how that unfolds. The same mobs celebrating a month ago could very well be rioting a month from now. Golden Dawn, whose polices are almost identical to Syriza, by the way, is standing their ready for their shot. That’s an important bit here.
Then there’s some sort of compromise that let’s the Greek government save face, but also let’s the EU pretend they held the line. The on-going negotiations are aimed at finding that magical solution, but so far no one has found one that works for all concerned. They have about two weeks to find one before events begin to get away from the politicians. Debt has to be rolled over, banks have to be re-capitalized and the bank run has to be stemmed.
For the Greeks, those are all bad options with unknowable consequences. The Europeans have similar problems. The ECB holds about 85% of Greek debt. The one option available to all debtors is default. Having that much debt suddenly go bad would not sink the ECB, but it would create serious problems for the bank. It would trigger all sorts of political problems as the EU taxpayers are ultimately on the hook for that bad debt. Private banks hold the rest of the debt so that offers up the possibility of further impairment to the EU financial system.
That means there’s a limit to how far the EU can push the Greeks. Assuming they choose not to go that route, the other option is to accept some amount of debt forgiveness. This would be fairly easy, but they have to maintain the austerity rules and the Greeks refuse to accept those conditions. For the EU to back off opens the flood gates for the rest of the periphery to make the same demands. You can be sure that the Clown Party in Italy is watching this closely, for example.
Of course, there’s the unknown unknowns. I pointed out on NRO the other day that the belligerents in the Civil War could not imagine the consequences of war. The First World War is another example. In both case, the belligerents could not accept the available options so they kept moving forward, waiting for the other side to blink. Brussels is not going to send tanks into Athens, but that does not mean there’s not something similarly awful lurking around the corner.
Andrew Stuttaford points out another wrinkle that could lead all of them over the cliff. The Greek voters getting froggy could very well lead the rest of Europe to follow the same route. The German and French voters my look at the Greeks and wonder why they should not be making similar demands. The whole point of the European project was to obliterate nationalism. If all of a sudden Germans start thinking about Germany, instead of Europe, keeping the project going loses its rationale. A union of countries that puts their own interests first is not much of a union.
My sense here is that the way to bet is on Syriza. The reason is the way radicals view crisis. It is the one thing they are good at, going back to the French Revolution. In a crisis, they look to pair their preferred option with one that is monstrous for the other side. They want the other side to think they have choice between going along with the radicals or facing a bloody mess. It’s how Hitler rose to power and it is how Syriza is trying to bully the Germans.
They keep bringing up the Nazis, not to shame or embarrass the Germans. That’s not the point. They are letting the Germans know that the choice here before them is to deal with Syriza or eventually deal with Golden Dawn. Tsipras is betting that the German elites are tormented by the idea of a photo-op with Golden Dawn leaders sporting black outfits. Given the political culture of modern Germany, Tsipras is probably right. Merkel would rather face her angry voters than be seen on the cover of Der Spiegel next to a Greek Nazi.
