Out of Options and Time, Tsipras Faces Greece’s Moment of Truth

Greek Prime Minister Alexis Tsipras has four days to capitulate to demands to keep Greece in the euro — or prepare for a messy divorce.

The collapse of talks in Brussels on Sunday has made Thursday’s meeting of euro-area finance ministers the next deadline in the saga that opened in 2009. Bills are piling up and the aid spigot, shut for 10 months, is about to be withdrawn.

“This week is deal week,” Mujtaba Rahman, head of euro zone analysis at Eurasia Group in London.

So what happens if the gathering in Luxembourg is a bust?

Once the prospect of a successful negotiation fades so do the odds of Greece paying the $1.7 billion it owes the International Monetary Fund this month. A default makes it difficult for the European Central Bank to keep Greece’s banking system afloat. The ECB, which will discuss the future of its emergency liquidity on Wednesday, is unlikely to cut it off completely until the bailout agreement expires on June 30.

Without the ECB’s largesse, Tsipras may need to impose capital controls to keep hard currency in the country as savers empty out their bank accounts in droves.
Capital Controls.

There is a 60 percent chance that Greece will skip out on its IMF payment, the ECB will turn off its tap and Tsipras will be forced to take extraordinary measures to stop funds fleeing the country, according Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.

“It is increasingly clear that Tsipras is not a leader that the euro area can ‘do business with’ and hence there are no longer any political gains for the euro area in trying to coax him towards the political center,” he said.

Greece Running Out of Time, Options as Talks Collapse

Tsipras has by turns lashed out at his creditors, accusing them of setting “absurd” conditions. At other times, he’s played nice. By adopting that see-saw approach, he’s pushed back Greece’s day of reckoning to now.

The IMF insists that Greece cut pensions further and raise sales tax to meet a primary budget surplus of 1 percent this year. Tsipras insists pensions are off-limits — predecessors who dared touch this sacred cow were booted out of office.

His government wants a more lenient fiscal target. Yanis Varoufakis, his finance minister and resident game theorist, has been unyielding in calls for debt relief.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.