Greeks Inch Closer to Default

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Debt negotiations usually seem to get resolved at the very last minute.  After all, the resolution is almost always that someone is not going to get paid as expected, and this gives every "someone" strong incentive to hold out as long as possible, in the hopes that intransigence will get them a slightly better deal.


But even by these standards, the negotiations over Greek debt are really pushing the limit.  It's been hard enough getting the private creditors--on whom the entire haircut looks set to fall--to accept losses which one person quoted by the FT puts at greater than 70%.  But the Greeks are also proving difficult.

Patience with Greek politicians has evaporated among its creditors. During a conference call on Saturday, eurozone finance ministers bluntly told Athens to deliver on its promises and agree to reforms or face default next month.

Jean-Claude Juncker, head of the eurozone group of finance ministers, told Der Spiegel at the weekend that the possibility of bankruptcy should encourage Athens to "get muscles" when it comes to implementing reforms.

"If we were to establish that everything has gone wrong in Greece, there would be no new programme and that would mean that in March they have to declare bankruptcy," he warned.

Mr Samaras last week threatened to veto the package unless concessions were made on private sector wages, claiming the cuts would prolong a recession already in its fifth year. Mr Karatzaferis also opposes further austerity measures.

The two sides were still far apart over projected cuts of 25 per cent in private sector wages, 35 per cent in supplementary pensions and the closure of about 100 state-controlled organisations with thousands of job losses.
On one level, this is entirely amazing.  As has been exhaustively explained everywhere, including this blog, Greece is currently running a primary deficit--meaning that even if they defaulted, their budget wouldn't balance.  And since defaulting would cut off the flow of credit, they'd actually be worse off than with almost any of the austerity plans proposed by their creditors.  And the resulting financial crisis isn't going to do much good for their economy. So watching them threaten to walk away is somewhat reminiscent of that famous moment from Blazing Saddles


And yet, in another way, it's entirely understandable.  How would you, Ms. Private Sector Employee, like to be told that you had to take a 25% wage cut because your government had borrowed too much money, and then cooked the books and lied about it?  I would be rather miffed, I think.


And when people are angry, they are not always perfectly rational.  They will hurt themselves, badly, if it means that they can also hurt other people who they feel have done them an injustice.

Talks will resume tomorrow, and I still expect that ultimately, they'll come to some agreement.  But still, it has never looked less likely.

Update:  I may have spoken to soon; Greece is now allegedly running a primary surplus.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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