Greece's 'war cabinet' prepares to battle EU creditors as anger mounts
The country's radical-Left leaders have concluded that there is little to be gained from any further concessions to EMU creditors
By Ambrose Evans-Pritchard
11:00PM BST 10 May 2015
Premier Alexis Tsipras and the leading figures of his Syriza movement agreed to defend their "red lines" on pensions and collective bargaining and prepare for battle whatever the consequences, deeming the olive-branch policy of recent weeks to have reached a dead end.
"We have enough money to pay the IMF this week but not enough to get through to the end of the month. We all know that," said one minister, speaking to The Telegraph immediately after the emotional conclave.
The war council came a day before Greece's three-headed team - deputy premier Giannis Dragasakis, finance minister Yanis Varoufakis and deputy foreign minister Euclid Tsakalotos - are due to go to Brussels for a crucial meeting with Eurogroup ministers.
Time is running out for a deal opening the way for the disbursement of €7.2bn under an interim agreement, due to expire in June. It is even harder to see how the two sides can narrow their enormous differences on a new bail-out programme, which must be intricately negotiated and then approved by the parliaments of the creditor states.
German finance minister Wolfgang Schauble said over the weekend that Greece risked spinning into default unless there was a breakthrough soon. "Such processes also have irrational elements.
Experiences elsewhere in the world have shown that a country can suddenly slide into insolvency," he told the Frankfurter Allgemeine.
Greek officials retort that this is a conceptual misunderstanding by the German and North European authorities. Syriza officials say they may trigger the biggest sovereign default deliberately if pushed too far, concluding that it is a better outcome than national humiliation and the betrayal of their electoral vows to the Greek people.
"If it comes to the crunch, Greece must default and go its way," said Costas Lapavitzas, a Syriza MP and member of the party's standing committee. "There is no point raiding pension funds to buy time. We just exhaust ourselves for no purpose."
"We went up and down Greece in the elections urging the voters to throw out the old government. The question now is whether we mean what we say, and whether we have the courage of our convictions."
Officials say Russian president Vladimir Putin has offered Greece roughly €2bn up-front to smooth the way for the so-called "Turkish Stream" gas pipeline. While this would allow Greece to meet its IMF payments in May and June and then default later to the European Central Bank - deemed the real foe - it would not solve any of Greece's problems.
Gazprom's proposed Turkish Stream project (Image: Russia Today)
The implicit quid pro quo would be a Greek veto on an extension of Western sanctions against Russia. Such a decision would damage the rift with Europe beyond repair and would infuriate the Obama White House, which still has some sympathy for Syriza.
It is understood that US Treasury Secretary Jacob Lew told the Greeks that they would be "dropped like a stone" if they played this game.
Amos Hochstein, Washington's energy envoy, said in Athens on Friday that the pipeline was a foolish distraction. "Turkish Stream doesn't exist. There is no consortium to build it, there is no agreement to build it. So let's put that to the side," he said. Behind closed doors he has imposed an emphatic American veto on the whole plan.
While it is theoretically possible that Greece could go bankrupt and remain in the euro, it would in practice have to nationalize the banking system and introduce a parallel scrip currency. The chain of events would probably force the country back onto the drachma very quickly.
Greece's leaders are bitter that their recent efforts to reach out and seek an "honourable compromise" have achieved nothing.
The only concession so far from the EU creditors is to reduce the target for Greece's primary surplus from 4.5pc to 2pc of GDP next year. "They are like sharks: once they taste blood they come back for more," said one minister.
The Greek newspaper Kathemirini reported that the Eurogroup is drawing up a Plan B that will be presented to Syriza as an "ultimatum", offering nothing from its side to break the impasse.
Greeks want to remain in the euro by a wide margin but they also feel deeply aggrieved that they were sacrificed in 2010, forced to accept what they deem to be an unjust package of loans in order to save the euro and the north European banking system at a time when EMU had no backstop defences in place and was acutely vulnerable to contagion.
Leaked minutes from the IMF confirm that the country was badly treated and needed immediate relief to break out of a vicious circle, but the EMU powers have never acknowledged their shared blame for the debacle.
The political dynamics have become poisonous because what was originally a dispute between the Greek state and private investors has metamorphosed into a dispute between Greece and the rest of eurozone as a result of the bail-out mechanism.
Any further debt relief would come at the expense of the EMU taxpayers, something that German Chancellor Angela Merkel and other leaders have said would never happen. Yet it is almost certainly going to happen. The IMF has threatened to walk away from the whole process unless a restructuring of Greece public debt - 180pc of GDP - is on the table.
It is clear that if Europe fails to heed the IMF's warnings, the Greek government may soon take matters into its own hands.