The Greek Issue

According to a lot of media, it seems that Greece will present, on Thursday, a new plan for a loan extension. Greece continues to reject a bailout extension process. That was the reason of the two unsuccessful meetings on February the 11 and the 16.

The discussion is not easy as they play a kind of “game of chicken” where none wants to be the first to step aside. In this game, each of the negotiators has his own targets. For the Eurogroup it is to maintain the commitment that was signed by the previous Greek government. For the new government, the bailout program was not perceived as sustainable after all the efforts that have been made by Greek citizens since 2010. In other words, starting positions were not consistent but they both have the same type of constraint. Greece didn’t want to exit from the Euro Area and the Eurogroup didn’t want to take the risk of a break in the Euro Area. That was the rules of the game.
During the negotiation, the Greek government must be inflexible to show that it has gone as far as it could. It’s important to have support from Greek citizens and from Syriza. For each government of the Eurogroup, a new deal with Greece implied a new vote at the Parliament and the necessity to convince each MP that it was the best solution. So it means that the first step of the negotiation was just to decide of this framework. Nevertheless in this context, an agreement has to be found before February the 28th because after this date Greece will no longer have financial support and will have to exit from the Euro Area.
On Tuesday this week, the Greek government has decided to present a framework for a loan extension that will be consistent with a non-official press release that was prepared by the European Commission. In this communique there is room for discussions that are not directly linked to the bailout program.
In the game of chicken, the shock between the two negotiators will probably be avoided and Greece by asking for an arrangement which is now acceptable, according to document from the ministry of finance, is probably the chicken. But who cares if the Euro Area can continue without a negative and persistent shock that would be associated with a Grexit.