Pay Up Or Else – Tsipras Plays Hardball

Waving the Default Threat

by Pater Tenebrarum

Alexis Tsipras continues to throw spanners into the works, or let's rather say he seems to be on a mission to fray the nerves of eurocrats and investors alike. This must of course be seen in the context of ongoing electioneering on his part: now that he has been thrown into the limelight, he has to play the role he has assigned to himself to the hilt.

The WSJ reports that there is now a 'defiant message from Greece':

“The head of Greece's radical left party says there is little chance Europe will cut off funding to the country and if it does, Greece will repudiate its debts, throwing down a gauntlet that could increase tensions between Greece's recalcitrant politicians and frustrated European creditors.

A financial collapse in Greece would drag down the rest of the euro zone, says Alexis Tsipras, the 37-year-old head of the Coalition of the Radical Left, known as Syriza, and potentially the country's next prime minister. Instead, he says, Europe must consider a more growth-oriented policy to arrest Greece's spiraling recession and address what he calls a growing "humanitarian crisis" facing the country.

"Our first choice is to convince our European partners that, in their own interest, financing must not be stopped," Mr. Tsipras said in an interview with The Wall Street Journal. "If we can't convince them—because we don't have the intention to take unilateral action—but if they proceed with unilateral action on their side, in other words they cut off our funding, then we will be forced to stop paying our creditors, to go to a suspension in payments to our creditors."

According to recent opinion polls, Mr. Tsipras' party is poised to win the most votes in repeat elections next month, bettering its surprise second-place finish in an inconclusive May 6 vote that left no party or coalition with enough seats in Parliament to form a government. With Mr. Tsipras poised to win pole position in the coming vote, it raises the risk that Greece will soon face a showdown with its European creditors over the contentious austerity program that Athens must implement in order to receive fresh aid.

In the past few weeks, European leaders—from the Continent's central bankers to Germany's chancellor—have made clear that the reform program is a quid pro quo for receiving further payouts from Greece's latest €173 billion ($220 billion) aid package, without which Greece won't have enough money to pay for basic services like schools and hospitals.

The high-stakes confrontation could determine within weeks whether Greece is cut off from international rescue loans and forced to print its own currency, or whether Europe blinks and lets Greece run bigger fiscal deficits longer, to prevent the spillover of financial panic to other indebted euro-zone nations, such as Portugal and Spain.

On Thursday, Fitch Ratings downgraded its ratings on Greece two notches further into junk territory, pointing to the increased risk that Greece may exit the euro zone.

Tsipras may or may not enhance his chances in the upcoming election with this tough talk, but he definitelylowers the chances to reach a compromise with lenders. We have previously reported on the mood in Germany: it is not conducive to getting Germany's political leaders to react to such threats by giving in. They would lose both face and votes if they did. Tsipras is playing with fire.

Maybe a SYRIZA Win Is Not So Certain After All – Is Tsipras Overplaying His Hand?

Meanwhile it has turned out that it is no longer certain whether he will actually win. At least this is what a recent poll appears to be showing. We would note to this that it is conceivable that some of the Greek protest voters are rattled by Tsipras' rhetoric and are beginning to fear the prospect that by electing him, they will precipitate a euro exit and a collapse of the Greek banking system.

The idea of nationalizing the banks and using their deposits to fund the government may not be as popular as Tsipras seems to believe. 

So it is not inconceivable that there will be a shift back to the more moderate centrist 'old guard' parties in the election.

Also, with the old guard, the citizenry can at least be reasonably assured that it will be totally ineffective in governing the country, which will leave it at least a certain degree of freedom that may become lacking under a very determined far-left government.

“A Greek opinion poll showed the bailout-supporting New Democracy party, Greece’s biggest, ahead of its main rival for the first time since the inconclusive May 6 elections as the campaign for the June 17 rerun kicked off.

New Democracy got 23.1 percent while Syriza, which is opposed to implementing Greece’s international rescue, had 21 percent, the survey of 1,027 Greeks by Marc for Alpha TV showed. The Pasok party garnered 13.2 percent, according to the poll, which was broadcast on Athens-based Alpha TV.

Based on the seat-allocation formula, New Democracy would get 26.1 percent, or 123 seats in the 300-member Greek Parliament, the poll showed. That would still leave the party short of outright victory. Syriza would have 66 seats while Pasok would have 41, the poll showed.

On the basis of those figures, Pasok and New Democracy, the two parties that supported an international rescue in an interim government this year, would hold a majority in the 300-seat parliament. The May 6 election left them two deputies short of the majority of 151 seats needed.”

We will see what happens, but this possibility can not be dismissed out of hand. Bruce Krasting has reported on a conversation he had with an Athens businessman. Now, the businessman may be projecting his own views on his countrymen and may be influenced by a certain degree of wishful thinking, but  what he says sounds reasonable – an excerpt:

“The results of the May election are in conflict with the people's desire to stay with the Euro.

The people voted in anger. They voted against those they had voted for in the past. Now they see whom they have elected. Every day on TV the extreme right is interviewed. They are Nazi’s. People are frightened by this. On the left you have Alexis Tsipras (Syriza). This man is an uneducated thug. The people understand that. They don’t want this man to be their leader.”

The reason why this is not an entirely unreasonable assessment in spite of the fact that it likely contains a modicum of wishful thinking is that prior to the election, parties like 'Golden Dawn' (the neo-Nazis) and SYRIZA where relatively obscure. Tsipras was known, but probably was never expected to  come close to taking power. Now that he is in the spotlight, people get to know him better and many are probably only now realizing what it might mean if he really becomes the head of government.

Yes, he promises radical change and it may well be that a majority of Greeks is ready for radical change. However, usually people are not in favor of anything too radical, especially if they still have something to lose. And in Greece they still have €165 billion in bank deposits to lose, for starters. Finally, even Antonis Samaras now promises it won't be business as usual if he becomes head of the next government. Although he has signed a declaration that he will stick with the demands of the troika, he now says the election result clearly indicates that the current policy must be altered. We would note to this that Samaras is in favor of tax cuts and deregulation, and although the well-known paralysis of the Greek administrative apparatus may frustrate attempts at reform to some extent, this is less of a problem when the program pursued actually aims to shrink the State.

However, one should also keep in mind that Tsipras probably enjoys great popularity with younger voters, many of whom likely feel they don't have much to lose (since a majority of them is jobless these days).