The Greek Endgame: Time to Choose Between Default and Defeat

For five years now, financial markets, European policymakers and the international media have been obsessed with the risk of an impending Greek default. Today, three months after Syriza’s rise to power and five years after the passage of the first bailout memorandum in Parliament, it looks like the endgame is finally here. As Greece’s left-led government remains locked in an insurmountable standoff with its international creditors, D-Day is fast approaching.

For the first time since the start of the crisis, state coffers are now really running on empty – and this time around, the deadlock in Greece’s debt negotiations with the Eurogroup means that there is no immediate prospect of access to emergency credit. The Troika of foreign lenders, which despite official statements to the contrary remains very much alive, is still refusing to release the final 7.2 billion tranche of its second 110 billion euro bailout. As a result, Greece has not received any of its bailout money since August – nor has it been able to borrow on private markets.

A nearly-botched pension payout last week revealed just how critical the government’s fiscal position has now become. After effectively seizing the idle deposits and cash reserves of lower-level administrations, municipalities, hospitals, universities and other public entities to obtain sufficient resources for the monthly transfers, officials still struggled to meet the deadline. The payment was eventually made with several hours’ delay and conveniently blamed on a technical glitch.

It is unclear, however, if the government will be able to make its next round of pension and wage payments by the end of May. Two weeks ago, Deputy Finance Minister Dimitris Mardas declared that he expects the state to run about 400 million euros short of the amount needed to effect the transfers. Meanwhile, the BBC reports that an undeclared domestic default is already taking hold, affecting government subcontractors, public institutions and private businesses. While public sector wages are still being paid, overtime work for hospital personnel, for instance, has been put on hold.

Meanwhile, the government’s precarious fiscal position and the widespread fear of an imminent default are producing debilitating spillover effects on the financial sector and the wider economy. Capital flight and deposit withdrawals have picked up dramatically in recent months, and fears of a bank run are on the rise. Two weeks ago, Bloomberg reported that “capital flight has reached unprecedented proportions.” In the six months leading up to March, a dramatic 62 billion – equaling roughly a quarter of GDP – was taken out of the country.

Similarly, between November and February, almost 30 billion euros in bank deposits evaporated as ordinary Greeks withdrew their last-remaining savings from the banks and stock them underneath their mattresses in bundles of cash. This slow-motion “bank jog” is likely to have continued through March and April. Earlier this week, government officials declared that they are now considering to impose a surcharge on bank withdrawals to raise funds and stem further deposit flight.

The inevitable conclusion is that the Greek government is in urgent need of an injection of cash, both to maintain basic government expenditures and to keep the domestic banking system alive. At this point, however, private investors are unwilling to lend to Greece at affordable rates, so the government remains dependent on the Eurozone and the IMF for further emergency loans and on the European Central Bank for emergency liquidity assistance to the Greek banking system.

But here is the rub: the three institutions on which the Greek state currently depends for its fiscal survival are all adamant to force the left-led government into submission. The reasons for this are overtly political: Eurozone governments are loathe to allow Syriza to set a successful example of debtor defiance, lest anti-austerity movements elsewhere in the Eurozone periphery be emboldened to make similar demands. They are also hell-bent on extracting as much debt repayment from Greece as possible before the inevitable default kicks in. And so the institutions are ratcheting up the pressure while keeping the government on a tight leash, thereby hoping to either break up the ruling coalition or force it into a humiliating surrender.

For the creditors, it is therefore essential that Syriza be forced into submission. The collective humiliation of Yanis Varoufakis at the latest Eurogroup meeting in Riga should be seen in this light. After the February 25 agreement, which forced Varoufakis to backtrack on earlier demands for a debt restructuring and an end to Troika-enforced austerity and reform, the sidelining of the finance minister in the debt negotiations marks yet another symbolic and strategic retreat for Prime Minister Tsipras. If things continue like this, there will be further retreats in the months ahead. The creditors are adamant to go all the way in bringing Syriza to its knees – and they have both time and resources on their side. The Greek government has neither.

Next week’s Eurogroup meeting of May 11 has repeatedly been touted as the absolute deadline for the Greeks to present a satisfying list of reforms and fiscal targets, but both sides already seem to publicly acknowledge that such an agreement is now extremely unlikely. The next day, on May 12, a 750 million euro payment is due to IMF. The Greek government may have just enough resources to make this payment, but it is unclear if it will be able to execute pension and wage transfers at the end of May. Then in June another 5.2 billion is due to the IMF, which it almost certainly cannot pay.

To make matters worse, 6.7 billion is falling due to the ECB over the summer. Whatever happens next, Greece will not be able to cover these payments without the disbursement of the last tranche of its previous bailout, and possibly even a third bailout on top of the last two. For this to happen, it would need to arrive at a new agreement with the creditors in June, where the latter will almost certainly try to force Syriza to its knees for a full withdrawal from its electoral program. It is now more than clear that the Eurozone simply will not tolerate any anti-austerity forces in its midst.

The conclusion from all of this is fairly straightforward: if Greece is adamant to repay its creditors in full, it will first have to convince them to disburse further bailout funds – which they will only be willing to do if the Syriza-led government abandons the anti-austerity platform on which it was elected. If, by contrast, the leftists are adamant on overturning the austerity measures against which they originally campaigned, the only real option that remains for them is to simply stop spending their scarce resources on repaying external creditors – and default.

In other words, it’s high time to forget about all the friendly rhetoric about Greece reaching a “mutually beneficial” deal with its creditors. The endgame is here. The Eurozone will not back down. Either the Greek government defaults, or it will be defeated. There is no other way.

Jerome Roos is a PhD researcher in International Political Economy at the European University Institute, and founding editor of ROAR Magazine. Follow him on Twitter at @JeromeRoos.


  1. Tom Johnson May 11, 2015 7:09 pm 

    Defeat or default were the only options from the beginning.

    By participating in the Troika’s Kabuki theatre games, the Syriza leadership undermined its credibility with the population and Syriza supporters around the world.

    It is too late for a referendum. The people know they have been defeated and their misery has become so great it is dishonest to expect them to choose default.

    Basically, a referendum is now a way for the Syriza leadership to save face.

    Another historical moment has been lost, but leftists and progressives within Syriza are learning some bitter and tough organizing lessons and will be stronger in the future.

  2. avatar
    Jerry Fres May 11, 2015 3:40 pm 

    Do you think a referendum – defeat or default – is in the cards or makes sense?

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