Greece and European hubris

Note kindly translated by Anne-Marie de Grazia

The question of a possible default of Greece in the coming days or weeks is time and again put on the table. But this question is sometimes confused with the one of internal liquidities. As it happens, this question is presently the main political instrument used by the Eurogroup to strangulate Greece and to try to impose policies which have been rejected by the voters on January 25th. This alone is saying a lot about the notion of democracy shared by the main European leaders and particularly M. Jean-Claude Juncker (a repeat offender in this domain who had declared, following the 25 January elections: “The can be no democratic choice going against European treaties” [1]) or M. Moscovici. Let’s add that the recent declarations by M. Schäuble[2] are perfectly in tune. One can measure how much the word « democracy » is merely a slogan devoid of content for the leaders of the European Union.

The issue of repayments

Greece owes money to the IMF, to the ECB as well as to the diverse aid funds (ESM-European Stability Mechanism and European Fund for Financial Stability EFFS). The repayment schedules until June 19 are the following :

Graphique 1

Repayment schedules

A - chart Detts

We can see that, besides small repayments to the ECB, the main part, at least until June 19, will be repayments to the IMF (2,54 billion Euros). Now, the International Monetary Fund has set itself apart by a much more “supple” attitude than the one of the ECB or the Eurogroup who supervises payments to be made to the ESM and the EFFS. One cannot exclude therefore that an arrangement will be found about these 2,54 billion Euros. But such an arrangement can only be temporary. Greece will have to reimburse, between capital and interests, about 7 billions to the diverse European institutions between the end of June and the beginning of July. The Greek government has repeatedly declared that it will not make these payments for they would absorb the totality of the sums (and beyond) of the (small) primary fiscal surplus it has been taking in and which it wants to affect to measures of support for the population as well as to measures of restarting economic activity. We also know that the Eurogroup, for the time being, refuses this solution. The Eurogroup even refuses to negotiate on the debt and seeks to impose reforms that besides being wholly useless [3], are refused by the Greek government and especially by its electorate. So that we find ourselves at a dead end.

What can be deduced from this is that a Greek default can intervene in the coming weeks, but will intervene in any case by end of June and early July. Except if, on one side or the other, a change in position occurs.

The liquidity crisis

In order to make Greece cave in, and to impose policies which the Greek voters do not want, the Eurogroup is organising a rationing in the offer of liquidities to Greece. The European Central Bank has “advised” Greek banks “against” buying Treasury bonds, it as de facto excluded Greece from the Emergency Liquidity Aid (ELA) mechanism, and is lifting most slowly the ceiling of its offers of liquidities. An author of the American review Foreign Policy, who cannot be suspected to be a leftie, goes so far as to speak of the « dirty tricks » of the Brussels Commision against Greece [4]. This situation, together with the retrievals from Greek banks and the flight of capitals, which have reached a very high level last March, confront the country with the risk that its economy, weakened by the austerity measures put into place by the European « protectorate, » will collapse rapidly. This is another problem than the one of a default. The link between the two problems is that if Greece defaults on its external repayments, the ECB will no longer be able legally to finance Greek banks. The default will provoke a liquidities crisis.

One solution might consist in the emission by the Greek government of bearer debts IOU with a full discharge power, which could be used by individuals as well as businesses in the way of a currency. But it is clear that such a measure would be equivalent to creating a parallel currency to the Euro, which would substitute itself to it very rapidly in transactions. An implicit exchange rate would come about very quickly, a promise to pay giving access to 98% only, then 95% then probably even less of its face value in Euros. In fact, Greece would be outside the Eurozone and it would have to rapidly tackle the question of current and futures accounts in the banks and of determining the scriptural and not merely fiduciary circulation of these “debt titles.”

The idea of a parallel currency allowing Greece to remain in the Eurozone is a delusion. History is full of the cases of countries which have used a parallel currency on their territories and it teaches us that these systems are highly unstable. A parallel currency, whatever its name, would come down to recreating, in effect, the drachma. But it is in reality the best solution for Greece in the present political situation.

The political Issue.

The Greek government built its strategy on the fact that the Eurogroup would have much more to lose in a crisis than Greece. In the case of a Greek default, the governments of the Eurozone would have to explain to their populations that the ECB must be recapitalized urgently and that the losses of the ESM and the EFFS must be covered. Moreover, a Greek default would entail the activation of the CDS (credit-defaut swaps) which have been emitted. Finally, on the psychological level, this crisis would signify to all observers that the Euro is not irreversible, as well as the fact that the countries of the « nucleus » of the Eurozone are not ready to take on the consequences of the functioning of the Eurozone. It would take only a few weeks for the crisis to reverberate in the peripheral countries (Spain, Portugal, Ireland and Italy). By and by, it would end up with the implosion of the Eurozone. This is why the Greek government does not want to give in. Let’s add to this that, as everyone will understand, should it give in, it will immediately lose all its credibility and legitimacy and that Syriza, a party which went in a few years from 4% to 36% in opinion polls, would be condemned to disappear.

But where the Greek government is making a mistake, it is in thinking that the decisions of the Eurogroup will be taken on the basis of economic interests. In fact, the governments of the Eurozone countries are enormously invested in the political and symbolic dimensions. The Euro, as has been said for years by the Italian philosopher Diego Fusaro, is not a currency, it’s a political and symbolic project. And this project cannot accommodate itself with a compromise with Greece. For, in the case of a compromise, validating the strategy of Tsipras and of Syriza, the whole of the austerity policies would fly apart (with a very strong encouragement to Podemos in Spain and to Sinn Fein in Ireland), not only to the discomfiture of Germany (and its allies) but also of the politicians who, in the other countries, have built their careers on this project (such as François Hollande).

This is why a compromise is in reality an illusion. There is no alternative for the Eurogroup than to either crush or perish. There is no alternative for the Greek government than to go to the fight or to perish.

Dead end and rupture

In fact, neither of the two adversaries, be it the Greek government or the Eurogroup, has any margins for negotiations. This situation is the one wanted by the Greek Minister of finances, Yannis Varoufakis, who knows game theory well, and who turned around the apparent weakness of his country to make it into a force. This is called « coercive deficiency ». But game theory functions only when facing a rational adversary. However, for years now the European leaders have left the frame of rationality and are only guided by ideology and by the hubris of the Europeist project. This term can be translated as grandiosity. But in reality, this goes much farther. It is a violent feeling inspired by passions, as in the European case, and particularly by vanity, especially the variety known as political vanity. The ancient Greeks considered hubris a crime.

Varoufakis’ strategy is up against hubris. This is a configuration he must know well. He also knows that, when faced with it, only rupture is possible.

[1] Naulot J-C., « Le défi Tsipras », Libération, 14/04/2015,


[3] Particularly the «reform» of the job market. See the World Economic Outlook of April 2015, published by the IMF, and Chapter 3, written by Patrick Blagrave, Mai Dao, Davide, Furceri (team leader), Roberto Garcia-Saltos, Sinem Kilic Celik, Annika Schnücker, Juan Ypez Albornoz, and Fan Zhang, with the technical assistance of Rachel Szymanski, available beginning April 16 on

[4] Legrain P., « Greece Needs to Start Playing Hardball With Germany », Foreign Policy, 10 avril 2014,


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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