Greece heading for Grexit (again)?
Monday, 06 February 2017

Back in November I wrote a bleak account of the situation in Greece as I witnessed it following a brief visit there.

More recently I have written pointing out how the IMF has itself concluded that the situation in Greece is unsustainable.

Though it is barely attracting international media interest, there is talk once more of Greece heading towards Grexit, with Tsipras's Syriza led government once again fast running out of money and in conflict with Greece's EU creditors, who are in turn accusing him of failing to carry out 'reforms' as agreed in Greece's bailout conditions.

The single event which seems to have precipitated the latest quarrel is that with his popularity plunging Tsipras broke the bailout conditions by giving a Christmas bonus to Greece's hard-pressed pensioners (who have had their pensions repeatedly cut since the start of the crisis) and ordering free school means for the children of Greece's poorest families. The creditors - both the EU and the IMF - were furious, and in response have suspended what limited debt relief Greece was receiving.

With Greece again running out of money, and with the IMF's Board due to meet on 20th February 2017 where questions are expected to be asked about why the IMF continues to involve itself in a bailout which its own experts say is unsustainable, on the face of it things look set for a repeat of the Grexit crisis of 2015.

The key difference is that after having folded so completely in 2015 no one this time is taking Tsipras seriously. The most plausible explanation I have heard for his behaviour is that he is preparing his ground for an early election, which he knows he will lose but which through his recent actions he hopes will allow him to quit the stage with his reputation as the defender of Greece's poor intact, leaving any mess behind him to be cleared up by the succeeding New Democracy Mitsotakis government. No one I know seriously expects him to lead Greece out of the euro.
If this really is Tsipras's plan, then it is a tawdry end to a disastrous government, which has severely weakened Greece's anti-euro forces at just the moment when opinion within Greece and in Europe towards the euro was finally starting to turn.

I would add as a Greek that the extent to which Tsipras's hardline pose in 2015 was exposed as a bluff is doubly humiliating by comparison with what happened previously in Cyprus.

During the 2013 Cypriot debt crisis the Eurogroup - the same group of EU finance ministers who have imposed their disastrous financial medicine on Greece - came up with a crazy plan to take money out of every single bank deposit in Cyprus in order to fund the bailout of the two Cypriot banks - Laiki and the Bank of Cyprus - which were in trouble. By doing that the Eurogroup threatened to turn a problem of two banks into a systemic crisis for the whole Cypriot banking system.

In the event the disaster was averted because the Cypriot parliament unanimously voted to reject this absurd proposal. The Cypriot government also let it be known that it stood ready to reintroduce Cyprus's old currency unless the Eurogroup backed down. Since everyone could see this was not a bluff, the Eurogroup did back down, and dropped its idiotic demand for an across the board on every single bank deposit in Cyprus.

The result is that though Cyprus was hit exceptionally hard by the crisis, it saved its financial system from collapse, and its economy has been genuinely able to recover.

Tragically Greece has not so far been able to find that degree of toughness and unity within itself, and it is Greeks who are paying the price for it.