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More brinkmanship in the Greek debt crisis roils stock markets
09/19/2011 1:12 pm EST
The problem is that every bit of budget austerity delivered by Athens blows another hole in the country’s ability to reach the deficit reduction goals promised as a condition of the rescue plan. It would help, of course, if somebody in Europe was growing but with growth slowing across the continent it looks like the Greek economy is headed to a 5% contraction. Last week Greece promised a new property tax designed to raise $2.8 billion, but already that isn’t enough to reach the deficit reduction goals.
Right about now, today, September 19, Greek Finance Minister Evangelos Venizelos is scheduled talk to officials of the International Monetary Fund and the European Union by conference call in an effort to convince them that Greece can meet the goals and that they can approve the $11 billion payment.
I know that all the headlines keep talking about default but thanks to an accident of the Greek budget what’s actually at stake at the moment isn’t default on the country’s bonds but on the government’s obligation to pay pensions and government salaries. Athens estimates that it has enough cash to meet those bills through the rest of September and for maybe the first ten days of October.
Greece does not owe another bond payment until December so a default on its debt is actually not quite as pressing as the need for cash to keep the country operating.
Today’s conference call is part of a strategy of brinkmanship on the part of everyone involved. The Athens government of George Papandreou has to convince at least some Greeks that it has done everything it can to reduce the pain while at the same time keeping the pressure on the International Monetary Fund and the European Union by threatening default—and the chaos that would bring. The International Monetary Fund and the European Union have to demonstrate that they have been tough negotiations to win approval from the members of the EuroZone to pay out the cash.
The danger of brinkmanship—cue Jan and Dean’s “Dead Man’s Curve” (1964)—is that you can hit an unexpected obstacle and wind up in a disastrous crash. Even after the International Monetary Fund and the European Union negotiators approve the payout, it still has to get approval from a formal meeting of the IMF board and then earn the nod from the 17 member governments of the EuroZone. I expect that the European Central Bank would step in to bridge any gap, if the payout is approved by negotiators, but that’s just my expectation.
This will be a near thing and the brinkmanship will keep markets on edge while it all plays out.
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