Greek Government "Not Holding Out Much Hope" For Monday Even As Market Signals Deal Imminent

With Greek money, deposits and time all running out ahead of Monday's key Eurogroup meeting, which in turn also marks the end of the Jeroen Dijsselbloem 10 Day ultimatum granted to Greece by which the impoverished nation should agree to extend its current bailout program, the political rhetoric has hit a crescendo, and so has the bluffing by every side as the cards are all about to be revealed. Case in point Greece, which on one hand is signalling that a deal is imminent and is willing to do
"whatever it can" to reach
it, and on the other, its government is posturing that a deal is not likely to come tomorrow.

According to Kathimerini, late last night, Greek PM Tsipras chaired a meeting of his cabinet on Friday night to brief ministers on the state of talks with the eurozone. "With the possibility of the government having to make a compromise with the eurozone over the way forward in the next few days, Tsipras was eager to assess the mood of his cabinet. Some members, such as Energy Minister Panayiotis Lafazanis have been adamant that the government should stick to its pre-election pledges."

Which probably suggests that Greece is if not about to fold, then certainly cave on most, if not all, of its demands.

Still, Greece is hopeful that some deus ex machina will appear in the last minute, and that delaying the inevitable will give it some further leverage. Which explains why, as Kathimerini reported, "the government is not holding out much hope for a solution in Brussels on Monday. There have been some positive steps but there is a lot of ground that has to be covered, said a government source.

Sources cited also insist that the Greek government would not be willing to back down from its position on certain issues such as labor regulations, privatizations and the lowering of the primary surplus target. Athens believes that the two sides can find common ground on issues like public administration reform, improving tax collection and tackling corruption.

“Greeks should understand that this is a critical and difficult negotiation, the pressure is enormous,” said government spokesman Gavriil Sakellaridis. “We will do whatever we can so that a deal is found on Monday,” he told Skai TV. “If we don’t have an agreement on Monday, we believe that there is always time so that there won’t be a problem.”

Alas, time will be a problem, as time is the only variable that will accelerate the culmination of the Greek game theory outcome, which has been explained on many occasions previously, and here by way of the FT, is merely the latest recap of how the Greek negotiations look like, if only in theory:

[W]hat kind of game are Mr Varoufakis and his eurozone colleagues playing? 

 

“The simplest way of thinking about it is a game of chicken,” says George Tsebelis, a professor of political science at the University of Michigan. The two sides resemble drivers heading for a single lane bridge from opposite directions. Each knows that if they swerve first, they will concede the bridge to the opponent. However, if neither swerves, the result will be a collision, and each hopes to intimidate the other by refusing to swerve. “In these scenarios, each side has an incentive to show he means business,” Mr Tsebelis says.

 

This might explain why Alexis Tsipras, Greece’s prime minister, says he cannot accept a compromise that includes an extension of the existing rescue programme as it would go against the mandate he has received from Greek voters. In a way, he is trying to signal to his European colleagues that he cannot swerve.

 

These games typically involve each player trying to influence the final outcome until the very end, when one gives way. But game theorists warn that in real life, the end game may be one in which neither side concedes.

 

This could happen if each party has committed so much to its uncompromising position, that it becomes impossible for it to change it. The new Syriza-led government is struggling to end its confrontation with the country’s international creditors

 

Alternatively, players may face extreme uncertainty over the costs of different outcomes. “Objectively, in this case, the pay-offs are not clear,” says Mr Tsebelis. Even within the eurozone, he says, governments might have different views over the exact cost of a “Grexit”.

 

Game theory also offers insights into why eurozone politicians may be forced to punish Greece even though they know this option would be painful for their own countries.

 

Germany and other creditor states have an incentive to threaten Greece by saying that if Athens reneges on its debt, it will be forced out of the euro. In theory, this intimidation is not credible. A “Grexit” would be damaging for all countries in the currency bloc, so even if Greece were to default, it could be expected that other member states would not want to eject Athens.

 

However, opting for forgiveness risks creating dangerous incentives for other countries to act in the same way as Athens. “Germany may decide that if the eurozone does not punish Greece, it will have problems with other countries such as Spain and Italy,” says Roger Myerson, a Nobel-winning economist at the University of Chicago.

Like we said, "in theory." In practice, with Greek deposit outflows said to have hit €1 billion per day, the biggest Greek leverage, one which is amortizing at an ever faster pace - time - may just run out.

Which is also why, as the Guardian reports, not only did Greek risk assets, but the S&P 500 itself, surge on Fruday (with the S&P closing at a new record high, just shy of Goldman's year end price target).

Greek stock markets have rallied on growing confidence that Athens will reach a deal with its international creditors next week.

 

In the runup to a meeting of eurozone finance ministers on Monday, the new Greek prime minister’s office vowed to do “whatever we can” to come to an agreement over a new support programme for the bailed-out country... On Friday, the new prime minister, Alexis Tsipras, appeared to soften his stance. He agreed that Greek officials would meet representatives of the troika of lenders who supplied the bailout money and imposed and policed the terms that came with it. Previously, Greece’s finance minister, Yanis Varoufakis, said the new government would refuse to engage with representatives of troika, made up of the European Central Bank, the European commission and the International Monetary Fund.

But what if the Troika is called something else? Because increasingly it appears that the only "concessions" Europe will make is to extend the maturity of Greek debt, which is completely irrelvant for a nation that can never repay its debt anyway, although if Varoufakis can call that a "haircut", so be it. That, and replacing the name of the Troika to "The Institutions", something Spiegel mocks as a "symbolic victory."

Unfortunately for Greece, "symbolic" is the only victory it will achieve if in 48 hours it is not prepared to truly exit the Eurozone, an outcome which at least the roaring global stock markets have already decided is not going to happen.

As for what's left of the Greek population, it will simply have to satisfy itself with making angry posters, because as long as it remains in the Eurozone the only thing it has to look forward to is seeing even more of what little Greek wealth remains, transferred over to those who call the shots and print the paper money.

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