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Friday, May 25, 2012 2:47 AM

What if Tsipras is Not Bluffing? Who Holds the Upper hand? What is Troika's Biggest Fear? Can Greece Possibly Stay in the Eurozone After Default?

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I have read countless articles over the past few week stating a belief that Syriza party leader Alexis Tsipras is bluffing in his threat to stay in the euro but default in debts.

Is it remotely possible to default and stay in the eurozone?

Since this is a multi-part question, let's first address the question "is this a bluff?"

A few snips from Der Spiegel article Tsipras Says Berlin Must Back Down on Austerity may help you decide.

Alexis Tsipras, the leftist leader who could hold the whole of Europe to ransom if he wins the Greek election on June 17, breezed into Berlin on Tuesday to tell Germans they don't own the euro zone, and that they will endanger the whole currency block if they insist on stringent austerity for his recession-hit country.

'With Austerity, Greece Will Soon Need a Third Bailout'

"We all have a duty to prevent a catastrophe," he said. "The possibility of the dissolution of the euro zone is not a temporary storm, it would be a historic, very negative development for the entire world.

"If Syriza wins the election on June 17, it won't mean we will leave the euro, on the contrary it offers a big chance for us to save the euro. If the austerity continues, Greece will need a third bailout in a few months, and a further debt restructuring, and that could enforce a return to the national currency.

"We are proposing a way to save the euro. Our possible election victory offers the prospect of stabilizing Europe, not causing more instability as feared," Tsipras added.

'High Hopes Regarding Break of German-French Axis'

He left no doubt that if he wins in June, Greece won't quit the euro without a fight. "The euro zone has no owners or landlords, we're not tenants in the euro zone, we're equal partners, and no one should take on the role as owners," he said, in another apparent swipe at Germany. "The treaty says no country can be evicted from the currency union.

"Austerity has evidently failed because Greek society has been destroyed, the production base has been dissolved. Our country has been in a deep recession for the fifth consecutive year, this has never happened in Europe in peacetime."

German taxpayers were having their money thrown "into a bottomless pit" in Greece, he said -- because bankers were getting most of it, and the Greek people weren't seeing any benefit.

"If we had had a different bailout program from the start that wasn't based on strict austerity but on growth and job creation, the Greeks could get back on their feet and pay back the debt," Tsipras said. "If you're giving a patient a drug that's making him worse the solution isn't to increase the dosage but to stop giving the drug.

"If the patient can't be cured the disease will spread to the whole of Europe and we all carry a historic responsibility to prevent this."
Does that Sound Like a Bluff?

Does that sound like a bluff or a raging madman as some make him out to be? While anyone can agree or disagree with his views I suggest his positions are carefully crafted. From the sounds of it (not that anyone can trust any politician), he seems reasonably sincere.

Moreover, bear in mind the "Greek Choice". Citizens can vote for New Democracy or Pasok, two parties that had a major hand in destroying Greece, or they can vote for a fresh face that tells them what they want to hear.

Is that politics by Tsipras or does he believe what he is saying? Does it even matter?

I suggest it doesn't matter. Voters are fed up with lies and hypocrisy of the previous leadership and want a change. New lies (if they are lies and not genuine beliefs) are no worse than old lies.

Greek Poll Shows Syriza Gaining Support Before June Vote

Shortly after the last stalemated-election, polls showed support for Syriza rose to a commanding lead. Then following a fear-mongering campaign from Germany, mainstream media, and other places, New Democracy went back into the lead.

Now, in a see-saw battle, Greek Poll Shows Syriza Gaining Support Before June Vote.
May 24, 2012

A Greek opinion poll showed the Syriza party, which is opposed to implementing Greece’s international financial rescue, building on its lead in voter support ahead of elections to be held June 17.

Syriza had 30 percent support, compared with 28 percent a week earlier, according to a Public Issue poll presented on Athens-based Skai TV today. That was ahead of pro-bailout party New Democracy, which had 26 percent support, up from 24 percent a week earlier, according to the survey.

European leaders meeting in Brussels tied their next steps on the financial crisis to the outcome of the bitterly contested Greek vote. The six-hour summit ended early today with an exhortation to Greek voters to elect a pro-austerity government that will make the budget cuts needed to keep the financially ravaged country in the group that uses the euro.

The poll showed 85 percent of Greeks wanted to keep the euro, compared with 12 percent who were opposed to retaining the currency. The survey also showed 62 percent against the terms of the bailout and 28 percent in favor.
Survey Results Show Greeks Want to Stay in Euro but Change the Terms

Is that remotely possible? Technically yes.

There is no provision to kick any county out of the eurozone and no process that allows it to happen either. However, nothing can stop a country from exiting. Nothing can stop a country from defaulting either.

The key factor is that as the budget sits now, Greece will run out of money without aid. Were that to happen, the only way Greece could pay bills is by returning to the drachma (assuming the Troika does not blink).

However, what if Greece could balance its budget? Then what?

Such a scenario, however remote, is technically possible and it probably has the ECB and banks scared s***less.

What is Troika's Biggest Fear?

Contrary to widespread fear-mongering campaigns by Merkel and mainstream media including Bloomberg (see Greek Voters Need to Look Beyond the Lies of Bloomberg, Merkel, ECB, IMF, Ekathimerini; Greece Nightmare Coming or Already at Hand?) the big fear of Troika is not that Greece implodes in the wake of a eurozone exit, but rather that it doesn't!

Indeed, what if Greece defaulted on debt and recovered à la Iceland?

While I do not think that is likely (before massive multi-year pain), it is theoretically possible.

Regardless, and without a doubt,  if Greece would implement genuine work-rule and pension reform following a default, it would recover faster than if it sticks to the Troika plan. Given Tsipras' stated positions, such a course of action is highly unlikely to say the least, but Tsipras may very well implode within a year, and followed by someone who does get the job done.

Who Holds the Upper hand?

The above discussion should make it very clear. Tsipras has nothing to lose and everything to gain and the Troika knows it. All that remains to be seen is whether Greek voters snatch defeat from the jaws of victory on June 17.

Once again, I have no love of the leftist policies of  Tsipras. However, it is in Greece's best interest to exit the eurozone and default on debt. To that end, I hope he wins the election on June 17.

Mike "Mish" Shedlock
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