All material subject to strictly enforced copyright laws. © 2022 Euromoney Institutional Investor PLC group
CommentGC View

Every player in the great Greek game has a weak hand

There has been enough jockeying for position between Greece’s newly elected government and its international creditors. It’s time to sit down with an agreement that works — and that means concessions on both sides.

It’s a well-repeated phrase that new Greek finance minister Yanis Varoufakis has spent the last couple of weeks going around Europe threatening people with a gun that’s been pointed at his own head.

Certainly, the threat of a Greek exit to the fortunes of the eurozone is not as grave as it was a few years ago. Outright monetary transactions, moves towards capital markets integration and, most recently, sovereign quantitative easing have all added firm bricks to the eurozone firewall.

But that is underestimating just what a Greek exit could mean.

Don’t forget, what really eased the market’s worries in 2012, before OMT was even announced, was European Central Bank president Mario Draghi’s promise to do “whatever it takes” to save the eurozone.

That means the eurozone as it is — including Greece. All the work that has been done since could be meaningless if investors feel that countries can leave the currency bloc when they get into trouble. Other countries with high debt-to-GDP ratios might soon find that the real firewall for the eurozone was Greece’s membership.

But there has been a lot of bluster from the Greek side as well.

Claims by the government that it could turn to the US or China for loans if Europe does not want to play ball are one thing. But a member of the Syriza-led coalition is also talking about seeking aid from Russia, the international pariah of the moment (Syriza itself has steered clear of such threats). 

While that could mean cheap loans as Vladimir Putin bolsters a relationship further west than some of his recent interests, Greece should remember that it is a member of more than just the eurozone. Its friends in NATO — including the US — are unlikely to view them as the most reliable of defence partners if it’s on the hook to a country at loggerheads with the West.

International investors are also going to find it hard to ever again invest in a country that would rather do a deal with what the West perceives to be the Devil than get round the table with its European partners.

In short, neither party has strong enough hands to be playing such a risky game.

Sooner or later the eurozone’s leaders have to come to terms with the fact that while it may not have been in Greece’s best interests to enter the currency bloc, it was allowed in and it wanted to join.

All this posturing is not only prolonging uncertainty in the markets — it threatens to damage the relationships between eurozone states forever.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree