Since business negotiations are all about getting the other guy to blink first, a game of chicken is nothing new to executives and business leaders. But the game that Greece is playing with eurozone creditors is the strangest game of chicken I’ve ever seen.
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Desperate for another bailout or risk the collapse of its own economy, Athens has virtually no negotiating leverage and everything to lose by rejecting the eurozone’s proposed austerity measures. And yet, it’s taking a hard-line stance in the hope that European leaders will back down.
While a Greek exit from the euro does carry some risk of inflation and contagion to European financial institutions, that’s nominal compared with the near certainty that, if it caves to Greece, the eurozone will have to contend with Portugal, Spain and Italy adopting the same negotiating tactic. And that’s simply not an option.
In other words, the long-term survival of the euro depends on the rest of Europe standing firm and calling Greece’s bluff. And that’s exactly what I think Germany, France, the International Monetary Fund (IMF) and Europe’s financial institutions that have collectively loaned Greece $271 billion to date have in mind.
Never mind that Prime Minister Alexis Tsipras is lobbying for a “no” vote in Sunday’s national referendum on creditor’s latest bailout proposal that includes what he calls unacceptable spending cuts and tax increases. It’ll be interesting to see just how far his five-month old administration is willing to play a game of chicken it simply can’t win.
Keep in mind that Tsipras is telling his citizens that rejecting the eurozone’s proposal will improve their negotiating leverage, which it almost certainly will not. He also says it’s not tantamount to leaving the euro, but that’s exactly what European leaders have signaled in slamming the door on negotiations until after the vote.
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So what happens then? The latest polls show the vote can go either way.
If the people vote “yes,” that could lead to an abrupt end to Greece’s short-lived far-left Syriza regime. Even so, there’s no telling how long it might take to repair the damage with European creditors and the IMF, to which Greece just defaulted on a $1.8 billion loan payment. Meanwhile, Greece’s debt crisis will continue until a new deal can be worked out. That’s probably the best-case scenario.
If the referendum vote is “no,” then I think Europe’s leaders and financial institutions will throw up their hands and say “game over.” Greece will be forced to exit both the euro and the European Union, since the two go hand in hand. It will have to rapidly transition to a new currency and print a lot of paper to meet its commitments, but since that takes time, Greece will remain cash-strapped and in crisis mode for some time.
Since none of that changes the underlying fundamentals – that Athens brings in way less tax income than it owes in pensions and other entitlements – that will inevitably lead to significant inflation. The irony is that the Greek people are bound to end up in the same boat as if they’d accepted the eurozone’s austerity measures in the first place. And they’re still going to have to find a way to pay back what they owe Europe.
The truth is, Germany, France and the rest of the eurozone have enabled this fiscally dysfunctional nation to keep kicking the can down the road until it simply ran out of asphalt. This no-win situation that can only end in disaster has been a long time coming for Greece.
Sadly, it’s the Greek people – the retirees, the poor and the businesses – who will suffer most for allowing themselves to be lured down a utopian path by selfish and foolish politicians who think money grows on trees and others should pay their debts. Maybe some good will come of this. Maybe we’ll all learn from Greece’s lesson. One can only hope.