In “Democracy Under Fire: Troika Looks To Force Greek Political ‘Reshuffle’”, we took an in-depth look at the true motivation behind the hardline stance adopted by Greece’s creditors. In short, we’ve argued that the troika is determined to send a strong message to EMU member countries that threatening to expose the idea of euro indissolubility as fiction is not a viable bargaining strategy when it comes to extracting austerity concessions from Brussels. This became even more important after regional and municipal elections in Spain which betrayed growing resentment for the troika and strong support for Podemos, a progressive political movement that is, in many ways, ideologically aligned with Syriza. Here’s what we said last month:
It is becoming increasingly clear that the Syriza show will ultimately have to be canceled in Greece (or at least recast) if the country intends to find a long-term solution that allows for stable relations with European creditors although it may be time for Greeks to ask themselves if binding their fate to Europe is in their best interests given that some EU officials seem to be perfectly fine with inflicting untold economic pain upon everyday Greeks if it means usurping the ‘radical leftists.’
Less than a week later, Syriza hardliners called for a default to the IMF and a return to the drachma. The motion was defeated by just 20 votes, prompting us to contend that Greek PM Alexis Tsipras will need to ensure that any serious proposal presented to creditors is first cleared by Syriza’s more radical members because the only thing worse than capital controls and “Grimbo” (i.e. a slow motion train wreck) is the chaos that would ensure should Tsipras strike a deal with creditors only to see it fall apart in parliament amid raucous party infighting and the rapid disintegration of government.
Now, it appears as though EU officials aren’t the only ones drawing up plans for capital controls and Grexit because as The Telegraph reports, the far-left faction within Syriza is ready to transition back to the drachma. Here’s more:
The radical wing of Greece's Syriza party is to table plans over coming days for an Icelandic-style default and a nationalisation of the Greek banking system, deeming it pointless to continue talks with Europe's creditor powers.Syriza sources say measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma.The confidential plans were circulating over the weekend and have the backing of 30 MPs from the Aristeri Platforma or 'Left Platform', as well as other hard-line groupings in Syriza's spectrum. It is understood that the nationalist ANEL party in the ruling coalition is also willing to force a rupture with creditors, if need be."This goes well beyond the Left Platform. We are talking serious numbers," said one Syriza MP involved in the draft."We are all horrified by the idea of surrender, and we will not allow ourselves to be throttled to death by European monetary union," he told the Telegraph.Syriza's Left Platform has studied the Icelandic model, extolled as a success story by the International Monetary Fund itself."The Greek banks must be nationalised immediately, along with the creation of a bad bank. There may have to be some restrictions on cash withdrawals," said one Syriza MP."The banks will go ape-s*** of course. We are aware that there will be a lot of lawsuits but at the end of the day we are a sovereign power," he said.Syriza has a strong ideological motive to strike at the financial elites. They view the banks as the nerve centre of an entrenched oligarchy that has run the country for more than half a century as a family business. Forcing these institutions into bankruptcy provides cover for a socio-political purge, best understood as a revolution.Iceland is a tempting model for Greece, but the parallel can be pushed too far. The Nordic country seized control of its three big banks - Glitnir, Kaupthing, and Landsbanki - when the crisis span out of control in late 2008.
As a reminder, this year Iceland will become the first European country that hit crisis in 2008 to beat its pre-crisis peak of economic output. In spite of its total 180-degree treatment of nefarious bankers, the banking system, and the people of its nation when compared to America (or The UK), Iceland has proved that there is a different (better) option that western dogma would suggest: imprisoning the bankers and letting the banks go bust. Here's what happened next:
In any event, it's also becoming clear that Tsipras is indeed limited by party hardliners in terms of what he can propose to EU creditors, and while Syriza claims this is evidence of party unity, it more likely represents the fact that the PM is stuck between allowing Greece to exit the euro or facing a severe political backlash in the event he comes to parliament with a draft proposal that includes concessions on pensions and the VAT. Here's The Telegraph again:
The creditors argue that 'Grexit' would be suicidal for Greece. They have been negotiating on the assumption that Syriza must be bluffing, and will ultimately capitulate. Little thought has gone into possibility that key figures in Athens may be thinking along entirely different lines.Tasos Koronaki, the party secretary, said on Sunday that attempts to split the party will fail. "The government will not enter into any agreement that is not accepted by the parliamentary group. We are more united than ever," he said.Mr Tsipras faces a critical choice. If he accepts creditor demands, he may lose a large bloc of his own party and have to rely on the establishment parties to push the deal through the Greek parliament.Such a course of action would render him a Greek version of Britain's Ramsey MacDonald, the Labour prime minister in the 1930s who enforced austerity and became the socialist figurehead of a Conservative national government.MacDonald never overcame the accusations of betrayal by the Labour movement. He died a broken man.
One is reminded of the demonstrations staged last week by members of the Communist-affiliated PAME union who displayed a banner depicting Tsipras alongside his two predecessors with the phrase “We have bled enough, we have paid enough.” The implication was that Tsipras is nothing more than a pandering technocrat, a characterization the PM is keen to dispel.
Ultimately then, Tsipras must decide how he wants history to remember his tenure as Prime Minister. Either he will be the leader who allowed Greece to crash out of the euro on its way to a redomination-driven economic collapse, or he will go down as the fiery advocate for change who caved under pressure and allowed the troika to stamp out democracy in the place where it was born.
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Here's some bonus color from Barclays on possible political outcomes:
We have argued that the cost of a U-turn by Greek Prime Minister Alexis Tsipras – that is, accepting the Institutions’ terms of an agreement – is likely to be a divided party, including raising opposition from radical Syriza MPs and possibly from its junior coalition partner, the Independent Greeks. However, in our view, this is something that PM Tsipras could survive, politically. The chances of early elections would be high in this scenario, but the likelihood of Mr Tsipras to be re-elected seem fair, in our view, even without the more radical factions of Syriza.
Instead, under the alternative scenario of no deal with the Institutions, in all likelihood we believe Greek banks’ access to ELA funding could be frozen shortly after the end of the month when the programme expires, and bank controls to limit deposit outflows and transfers abroad would be required. In addition,this scenario would also mean a divided Syriza, with the more moderate members opposing the government´s decision not to reach a deal. We think a majority of Greeks would blame the government for the failure in the negotiations and the freezing of their deposits. In our view, PM Tsipras would be worse off in this scenario, and we think it is unlikely that the government would be able to survive it.
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