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Global Macro Context™ – Greece the Euro and Politics

The Syriza government in Greece is at a critical juncture.  Having failed to deliver on campaign promises thus far, it has instead focused on several small symbolic victories.

The visit to Russia to meet with Putin and making a recent loan payment without the any outside help are all actions catering to domestic public support.   Some Greeks might feel better as a result due to social and psychological reasons arising from a short-lived independence.

However, this does not solve any of the problems faced.  Greece might be able to pay off the next loan instalment also, but cannot continue this act beyond June/July without help.

This all arose because of the failed talks during the visit to Germany.  From the German point of view, concessions could not be made to Greece, especially a Greece led by Syriza.  That would have been a victory for the anti-austerity camp in Europe and would embolden other similar parties, especially in Spain.

Being in a very weak negotiating position while taking a very aggressive approach with the rest of Europe has soured relations.

Recently, several articles in the Financial Times have quoted leading political statesmen in Europe as saying a ‘Grexit’ might not be such as bad thing and that Europe is now better prepared for such a possibility.

The question now is how long can this ‘game’ be played by the Syriza government?  The answer is not very long.

Aside from domestic politics and European politics, the Syriza government is trying to gain some leverage by reaching out to Russia and to China (sale of the important port of Piraeus to Cosco).  Both of these actions have likely caused panic in both Brussels and in Washington.

In the case of Russia, help would be difficult due to the embargo on Russia and the current difficult economic situation there.

In the case of China, there could be some help in terms of obtaining funds from the sale of the port which would buy Syriza more time.

In short, domestic political considerations are important here and I expect this ‘game’ to go on longer than most people think since Syriza needs to show defiance and independence in order to save face.

But in the end, they will be forced to go back to the bargaining table.