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Food Fight in the EU Fudge Kitchen

28 February 2015

    The extraordinary turmoil that’s been caused by the seemingly irrational acts of Greece’s new leaders was momentarily abated this week by their submission of a vacuous letter of intent to European Union finance ministers. Even though those ministers had previously demanded that the Greek government specify exactly what new “austerity” measures the Greeks wished to substitute for the ones previously imposed by the Troika, they immediately pronounced that the Greeks’ non-response was a good “starting point”. Their turnabout was clearly driven by a perceived need to pacify financial markets and mollify their constituents. However, the parties are not at any “starting point”, they are now at the denouement.

    The fact that EU Finance Ministers overtly bypassed the gatekeeper role of the Troika that they had previously established should have triggered some journalistic inquires, but mainstream news outlets completely ignored that and other nettlesome details. Instead they just spouted cheerful party-line talk for financial markets about Greece’s having achieved a “four month reprieve”. One report simply stated that the “European commission, the European Central Bank and International Monetary Fund assessed the list before it went to the euro-region group of finance ministers for approval”, without even mentioning that the representatives of two-thirds of that group had expressed serious and uncharacteristic public reservations about the list to EU finance ministers.  

    The next stage of this drama is not four months away, it is weeks away, and it promises to be tumultuous.  Greece needs additional money right now.  It is unlikely that the country can maintain even a pretense of solvency through the end of March, let alone through the months of negotiations that are expected to be needed before there can be any release of the final tranche of previously-earmarked bailout funds. On top of everything else, a €1.2B Greek repayment to the International Monetary Fund is due in the next few weeks.  

    The optimistic “four months” commentaries all failed to address a critical development that occurred as a result of Greece’s immature negotiating tactics. Having given EU finance ministers multiple reasons to be alarmed about their representations and intentions, the previously indulgent ministers suddenly and unexpectedly shut off backdoor financing schemes on which Varoufakis and company were counting to carry the country until its next public capital infusion. As a result Greece now can’t sell its T-Bills to the ECB, readily access €11B in emergency bank funding, or get an advance on the EU’s bond-buying “profits”.  

    Stung by the EU’s cutoff of its clandestine financing plans, Greece’s famously-smirking Finance Minister returned home and immediately gave a radio interview in which he declared that his letter amounted to nothing but a “fig leaf”.  Endeavoring to achieve the maximum possible provocation, he boasted, “[we] are proud of the level of vagueness”, and claimed that EU officials had deliberately sought opacity in order to delude their own parliaments. Smashing down the gauntlet, he announced that “at this moment the coffers are empty”, and openly dared the EU not to “hand over [ECB] money” or provide another form of interim financing. Lest any incendiary device be wasted, he also renewed the hot-button demand for debt relief that the EU had previously rejected.  

    Given Greece’s actual monetary condition, there is no way the EU can now simply soften its bailout terms. It will need to transfer cold cash in the bright light of day just to keep up a veneer of Greek solvency.  If the ECB were to try to restart backdoor financial support by way of T-Bill purchases, the move would trigger serious national objections that could quickly spiral out of the capability of EU leaders to control.  

    EU leaders obtained a brief respite with their latest punt, but they did so at a crippling cost. Their collective credibility is now squarely on the line, and the individual political futures of all EU and national leaders who voted in favor of further concessions are now also miserably subject to Greek actions over which they have no control. Their foolish admissions that they desperately fear even the possibility of losing financially insignificant Greece – publicly and uniformly repeated by every single EU actor at every single negotiating stage – have only served to embolden the unseasoned but intuitively shrewd Greek players. 

    Greece’s ministers may not hold many cards, but like the upside-down Diomedes in the famous statue in Italy's Palazzo Vecchio, they appear certain that they’ve identified the EU’s greatest vulnerability and have it firmly in hand. Far from acting like supplicants, they’ve repeatedly taunted their creditors with the implied threat of mutual assured destruction: if we go down you’re going with us. On more than one occasion Mr. Varoufakis has publicly emphasized that he's “confident” that the EU will continue to give Greece more money and concessions, despite multiple contrary statements from the other side.  

    To date fears of the unknown have kept EU members in lockstep support of the argument that Greece must be prevented from dropping out of the Eurozone at all costs, but competing emotions and evolving expectations can eventually displace even the greatest of fears. As Klaus-Peter Willsch wittily stated in the course of exhorting his fellow German legislators to reject the EU’s request for a approval of the Greek letter, “[b]etter an end with terror than terror without end”.  

    The most sacrosanct rule of fudge-making is that the consumers be shown only the end product, not the process. Despite the EU’s best efforts to keep this nasty dispute in the kitchen, Greece’s leaders have caused it to spill out into the entire house. Whether that was by design or incompetence is a matter of debate, but Syriza has curiously gone to great lengths to cut off face-saving possibilities of retreat for both parties. It seems bent on bringing this battle to a sharp public climax, whatever the risks.  In light of serious missteps that have been made on both sides, the next act of this drama is very unlikely to be delayed until April, and is very unlikely to end quietly.


© 2015 F. Emmett Fitzpatrick, III. All rights reserved.