Greece Will No Longer Deal with ‘Troika’

It now strongly appears as if Greece, Germany, and the nannycrats in Brussels are all on one hell of a collision course. Both sides have dug in, and the war of words has escalated in all corners.

For example, please consider Greece Will No Longer Deal with ‘Troika’, Yanis Varoufakis Says

Greece will no longer co-operate with the “troika” of international lenders that has overseen its four-year bailout programme, the country’s finance minister said.

Yanis Varoufakis also said Greece would not accept an extension of its EU bailout, which expires at the end of February, and without which Greek banks could be shut off from European Central Bank funding.

“This position enabled us to win the trust of the Greek people,” Mr Varoufakis said during a joint news conference with Jeroen Dijsselbloem, chairman of the eurogroup of eurozone finance ministers, who was visiting Athens for the first time since a leftwing government came to power this week.

He also blasted the deeply unpopular bailout monitors from the European Commission, IMF and ECB, also known as “ the troika”, saying: “We are not going to co-operate with a rottenly constructed committee.”

Germany Prepared for Negotiation But Won’t Negotiate

The position of Germany and Jeroen Dijsselbloem, chairman of the eurogroup of eurozone finance ministers, is equally one-sided.

Mr Dijsselbloem warned the new government against taking unilateral steps or ignoring arrangements with lenders, saying “the problems of the Greek economy have not disappeared overnight with the elections.”

Wolfgang Schäuble, German finance minister, warned Athens on Friday against trying to “blackmail” Germany with its financial demands.

Mr Schäuble said Germany was ready to co-operate but only on the basis of current agreements. “We’re prepared for any discussions at any time but the basis can’t be changed,” he said. “Beyond that, it is hard to blackmail us.” 

Martin Jäger, the German finance ministry spokesman, said any request for an extension of the existing financing programme would only be acceptable when it was “tied with a clear readiness of Greece to implement the agreed reforms”.

Gaming Theory

Everyone is willing to negotiate, but only on their terms. Realistically, no one is willing to negotiate. Moreover, the Troika has its hands full with Yanis Varoufakis, an expert who wrote a Book on Game Theory.

I suspect prime minister Alexis Tsipras picked Varoufakis precisely because of his skills at game theory.

New Game to Play

Please consider a few snips from Yanis Varoufakis: From Accidental Economist to Finance Minister by  Tony Aspromourgos, Professor at University of Sydney.

Varoufakis was a gifted and popular university teacher in Sydney. I know because I taught side-by-side with him for a number of years. He was also a thoughtful and productive researcher.

His research was first focused primarily upon game theory. But he also developed an expansive intellectual reach across what may be called “political economy” in the generic sense, particularly focused on the evolution of capitalism as a global system.

Hesitant politician

Varoufakis has described himself as an “accidental economist”. He is perhaps even more an accidental finance minister.

There is no reason to doubt the sincerity of his earlier expressed ambivalence about entering politics and the party-political fray. It is the vacuum created by the failure of the mainstream parties of the centre-left and centre-right that calls forth this participation.

The media’s referring to the new Greek government as “far left” or “radical left” is just an intellectually lazy acquiescence in the language of the European political and policy establishment.

In truth, the position of Syriza is not so way out. Syriza is merely left-wing, whereas the mainstream European parties supposedly of the centre-left are no longer left-wing at all.

New Game to Play

I mentioned above that Varoufakis’s earliest academic research was concerned with game theory, albeit from a rather critical standpoint. He has already broken down the realities of one Greek election using game analogies.

Game theory as a method of research in the social sciences is first and foremost about the logic of strategic interaction between players. The situation that is being played out now, between Greece (as well as others of the “south”) and the political establishment in Europe, is without doubt a strategic situation. It is a game of high-stakes policy poker with the players on both sides, perhaps engaged in an element of bluff.

It is interesting that a game theory expert should find himself, now, at the centre of this situation. There is a great deal at stake, for the welfare of the people of Greece, the other high-debt States and Europe as a whole, as well as for the viability of the European Union and the euro.

Nobody’s Right If Everybody’s Wrong

What if they are all wrong?

While pondering that philosophical question I offer another musical tribute.

link if video does not play: Buffalo Springfield – For What It’s Worth 1967

There’s battle lines being drawn
Nobody’s right if everybody’s wrong
Young people speakin’ their minds
A gettin’ so much resistance from behind
Time we stop, hey, what’s that sound?
Everybody look what’s going down

Olive Branch Smashed

Greece’s refusal of a bailout extension puts a time limit on matters. The existing bailout agreement expires late-February, less than a month from now.

Interesting, the refusal to accept an extension comes on this olive branch just a few hours ago: Europe Hints at Greek Bailout Extension.

Grexit in the Cards?

Unless cooler heads prevail, Grexit is in the cards.

Right now it appears as if neither side will back down. Calling the Troika “Rottenly Constructed” surely sets the tone for Greece.

We’re prepared for any discussions at any time but the basis can’t be changed” sets the tone for Germany.

I wonder if the Greek position is on purpose.

Tsipras’ claim that he wants Greece to stay on the euro. That helped get him elected. Is that how he really feels?

If not, then unless he gets nearly everything he wants, Grexit is all but assured. And if no agreement is reached, Tsipras has an easy fallback plan: Blame it on Germany and the much hated Troika.

Mish’s Game Theory Math

  • Greece will be severely disadvantaged in the short term if it exits. But it will also recover faster.
  • If Greece stays in the eurozone, on Germany’s terms, it will bleed to death for another decade or more.
  • Germany and the Eurozone have more to lose than Greece.
  • If Greece exits, the entire eurozone will blow sky high simply because of “exit math”

Exit Math

I wrote about exit math twice recently.

If Germany and the eurozone does not bend significantly, Greece may very well come to the conclusion it has little to lose and everything to gain in the long haul by telling the Troika to go to hell.

And that is a position I endorse even though I disagree with many of the overall policies of SYRIZA.

In the end, my analysis says the eurozone has far more to lose than Greece if a Grexit occurs. However, I highly doubt Germany realizes that.

Even if Germany does, it takes unanimous agreement from all 19 eurozone countries to revise the agreement. That’s part of the math.

Place your bets.

In the meantime I once again repeat my warning to Greek citizens: Another Run on Greek Banks Begins; Get Out While You Still Can; Buy Gold


In regards to “rottenly constructed”, reader Lefteris emailed … The minute I heard Varoufakis say “σαθρή”, I figured it would be badly translated. It’s not a very common word. In context, this word correctly translates as “weak”, “not cohesive”. A more negative translation is “flimsy”, but that’s not what Vafourakis meant.

I made a correction above, changing the word “ruined” to “severely damaged” in this sentence:  Greece will be severely disadvantaged in the short term if it exits. But it will also recover faster. That said, hyperinflation is a possibility, and if that happens, the currency would indeed be ruined. The country itself wouldn’t.

Mike “Mish” Shedlock