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Greek Thoughts

Having just watched Varoufakis and Dijesselbloom’s press conferences:

http://tvnewsroom.consilium.europa.eu/event/eurogroup-meeting-february-2015/press-conference-part-165519622693917503
http://ec.europa.eu/avservices/ebs/live.cfm?page=1

I wanted to jot down a few thoughts on how things are progressing:

1. Anyone who is surprised that this is taking a long time should work in sales…

This is an ultimatum game. In the event that nothing gets decided both sides will lose hugely. Additionally, neither side knows how much the other is prepared to give up, or how much pain they can take. Therefore, making sure it goes right down to the wire is the only way to ensure that your opponent is giving up as much as you can possibly force him to, anything else is just irresponsible. I applaud Varoufakis and co for not being cowed by the big countries and big names briefing against them, and sticking to their guns. I encounter this phenomenon all the time in market making, especially when trading illiquid products. My client will want to buy some exotc option from one of the traders at my bank, and the trader will quote him a price. As there’s no certainty on where the price should be, he quotes the maximum he thinks the client will pay. The client comes back (inevitably) saying that the price is outrageously high. Then some bluster takes place, which I mediate. Then, just as it looks like no compromise is possible, I will make a trivial concession to the customer and win the trade. This is good negotiating.  On this, the Eurogroup, especially Dijesselbloom, and the Greeks are both doing well. Dijesselbloom is doing especially well to maintain the facade of holding out on Greece, as his position is so obviously intellectually dishonest and politically untenable it is really impressive that he manages to stick by it – and I mean that totally non sarcastically. He’s doing a good job according to the rules of the Eurogroup.
2.  Yanis Varoufakis is the man.

He is just, stunning. I am constantly impressed by his ability to communicate under pressure, and act reasonable while playing brass balls politics. He looked relaxed at the press conference, like he was conducting a challenging thesis defence rather than negotiating for the future of his country, and constantly found time to break out inspiring phrases and act like he’s taking the high road. Some highlights:

“Anyone who plays little games with the indivisibility of Europe is an anti-European.”

“Greece should be treated as an equal and not as a debt colony.”

“This government is not playing games. It is engaged in discussions to find solutions”

Thanks to @TeamVaroufakis for picking them out…

3. Everyone has a lot to lose.

It is a delicate balance. Greece may have suffered a crippling recession, but how much worse could it get given:

Debt to Private

The Greek banking system is clearly still churning away, making loans and supporting economic activity in spite of everything. There is a lot of scope for this number to fall. If it does the dire GDP numbers will get worse as well.

The Eurogroup must find a compromise as well. The payoffs for them are more complex, and one has to believe that someone somewhere in the Eurosystem has figured out how to not make Target 2 destroy the entire Eurosystem if the Bank of Greece is booted out, but it’s hard to put an upper bound on the cost of Grexit.

4. Dijesselbloom seems to be playing house captain for the smaller FinMin’s

He doesn’t have the air of a stupid man to me, but he is supposed to be the president of a group of finance ministers who say things like:

“In our opinion, the conditions are very favorable for Greece,” – Maris Lauri, Estonia

Urh… yeah. Right… It will take political courage to get such remarkably ‘at odds with reality’ folks to face up to  the reality that they will be on the hook for Grexit if they continue to destroy the productive capacity of the Greek economy.

 

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