GREECE – COPOUT STILL MORE LIKELY THAN BAILOUT OR BURNOUT

Events in the past 48 hours have reinforced my long-held view that a copout – whereby the Troika grants the Greek government new loans in exchange for agreeing to strict reforms – is more likely than a full bailout (including significant debt forgiveness) or burnout (Greece defaults and leaves the eurozone). See Greece Lightening (28 January 2015) and Half-Time: Pass the smelling salts (3 July 2015).

Three developments in particular suggest to me that we are closer to some kind of agreement:

  1. Referendum outcome: The emphatic no-vote at Sunday’s referendum gives some weight to the Greek government’s position that aggressive Troika demands could result in Greece defaulting and leaving the eurozone.
  1. Personnel changes: Finance Minister Varoufakis’ unexpected resignation potentially removes a stumbling block to negotiations between the Greek government and its creditors. Varoufakis had held a hard stance and clashed with Troika policy-makers. He is replaced by Euclid Tsakalotos, formerly Greece’s Team co-ordinator and Deputy Foreign Minister for Economic Affairs. He is reportedly close to Prime Minister Tsipras and has taken a more conciliatory approach in negotiations than Varoufakis. The creditors’ stance has not softened much, with Germany maintaining a hard-line, but there are still voices in France and Italy – respectively the second and third largest eurozone economies – calling for a degree of compromise.

As I argued in Greece – Too many chefs spoil the broth (23 June 2015), this Greek drama has been as much about people as it has been about numbers and I have taken this opportunity to update Figure 1 below.

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