Greece Offers ‘Definitive’ Plan to EU Leaders, Tsipras Says

donsutherland1 said:

From Bloomberg.com:



Greece Offers

This concept almost certainly includes a degree of debt forgiveness given the reference to a "definitive solution." The IMF has been open to negotiations toward that end. The big questions concern whether private and public sector creditors would both participate and the amount involved. Some private creditors, as well as Germany, might be very reluctant to agree to any debt restructuring. Ultimately, such restructuring would need to be agreed through negotiations.

If the Greek Plan seeks an immediate agreement on forgiveness, it likely won't get very far, unless the Greeks agree to accept negotiations toward that end in place of an immediate agreement. If the plan seeks a commitment to future negotiations on debt forgiveness, that position might not be a deal-breaker.

Other big issues to be resolved include structural reforms, including tax and pension reforms. Nothing was mentioned about that angle in the early news story.

So, at least for now, it's premature to know whether this new proposal offers a starting point for a possible breakthrough in the deadlock. As the day goes on, more details will almost certainly be reported.

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Ben K. said:

If Russia wants to pay for Greek pensions, let them.

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donsutherland1 said:

Greece had little leverage. The EU, ECB, and IMF understood that the costs Greece faced from default were substantially higher than those associated with austerity and structural reform. They understood that default was not rational. As a result, they were in a position to call Greece's "bluff" and they did. That doesn't mean that irrational actors in Greece's Parliament cannot still plunge Greece into default, but it does mean that the Prime Minister wouldn't deliberately do so.

Ironically, Greece might have had more favorable terms if it moved aggressively to negotiate an agreement early on. Then, in an atmosphere of good will, the EU, ECB, and IMF could have been more accommodating in reciprocating Greek efforts to deal seriously with the issue. Unfortunately, Greece's government did not take that approach. Its negotiating posture assumed that the EU, ECB, and IMF were unaware of the real consequences should Greece default, hence they would believe Greece had leverage and capitulate to Greece's maximum demands. However, with the ECB providing emergency liquidity to Greek banks on at a quickening pace, there is no possibility whatsoever that Greece's interlocutors could not have a good understanding that default would be catastrophic for Greece. Hence, to put it in terms of some of the more radical elements in Greece's government, the "negotiation failed."

In the end, power matters. When a party lacks leverage and its position is relatively well-understood by its interlocutors, it cannot bluff its way into terms more favorable than the actual state of its leverage. With the Greek Finance Minister having an academic background in game theory, one would have expected the Greeks to have understood the limitations of their position and pursued a course that would have led to a more favorable outcome. Instead, political ideology and emotion crowded out reasoned calculation among the Greek government's negotiating team.

An interesting opinion piece concerning the high costs of the Greek negotiating approach can be found at: Greece's Punishing Deal - Bloomberg View

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polgara said:

Greetings, donsutherland1. :2wave:

Could Greece get by somehow if they left the EU? Is their economy minimally strong enough to rely on their olive oil and other exports for a while, using the drachma as their currency again?

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donsutherland1 said:

Given that the ECB has provided support to Greece's banks perhaps approaching 65% of Greek GDP when one includes the most recent infusions, the period from default to a resumption of economic growth would probably be vastly more painful than what Greece has experienced to date. With Greece locked out of international credit markets and having lost its ECB lifeline, it wouldn't be surprising if its economy contracted perhaps another 10%-20% and its unemployment rate peaked above 40%. To date, the Greek economy has contracted more than 25% since 2007 and its unemployment rate stands at 27.7%. It remains uncertain whether Greece could pass through such an intensification of its economic pain without facing the risk of the collapse of its political system. My guess is that risk is part of the reason the Greek Prime Minister finally abandoned his previously intransigent stand.

Needless to say, there are some irrational actors in Greece's government who have little or no concern for the consequences of their choices. From Bloomberg.com:

“Personally, I cannot support such an agreement that is contrary to our election promises,” said Dimitris Kodelas, a lawmaker for the governing Syriza party who is part of a fringe faction associated with former Maoists. “I do not care about the consequences of my decision.”

Greece Inches Closer to a Deal - Bloomberg Business

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polgara said:

He had to make some concessions, for heavens sake! He's getting flak because he has been promising his people for quite a while that he wouldn't go that route, but what choice did he have? The government will get their bailout, even though this put Merkel on the spot with her voters since they're weary of having to pay most of the bills! Hey, if you're dealing with a big mess, make it all-inclusive, right? :shock:

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NonoBadDog said:

I learned that all inclusive is kind of like sharing a poo sammich.

Greetings, NonoBadDog.

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Fenton said:

That last quote says it all.

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