So, last week I said, Greece was getting booted out of the eurozone.

  • Schäuble had refused to play ball with Tsipras, he would either accept complete capitulation or Grexit.
  • Tsipras couldn’t accept complete capitulation and betray his allies and his mandate. And he didn’t have a mandate for Grexit. So he called the referendum.
  • As I saw it, choices were:
     
    • “No” – immediate Grexit. Presumably Tsipras and Varoufakis had a Grexit plan, involving seizing the Bank of Greece, printing drachmas, or something.
    • “Yes” – hand over the disastrous situation to a new government, which would probably also be forced into Grexit.
  • You may ask why Schäuble and Varoufakis claimed “No” might not mean inevitable Grexit. I thought that was an extremely cynical political ploy. They both wanted and expected “No” to win, and Greek referendum voters didn’t want Grexit. Schäuble and Varoufakis each expected they would then engineer Grexit in a way that their respective constituents would blame the other party.
  • After the “No” vote, it appears Varoufakis may have had a plan to seize the Bank of Greece and print a parallel currency. But Tsipras wasn’t on board and nixed it.
  • Instead, Tsipras took his mandate and formed a united front with the opposition to present the plan that was rejected by the voters.
  • This seems, at first glance, like the dumbest negotiating strategy ever. If James Galbraith is to be believed, Tsipras’s plan was to lose the referendum and hand over the negotiations to the opposition, who would be blamed for the catastrophic outcome. Now he gets to be blamed, either way. And he’s still not ready to be blamed for Grexit. So what was the point of the referendum?
  • The only upside to this strategy is, maybe, if and when the creditors reject the proposal, it buys time for the drachma introduction, and it brings his opposition on board. But if the creditors accept the proposal, Tsipras owns it.
  • So, now what? It’s all up to Merkel. Schäuble is indifferent if not nakedly in favor of Grexit. The economics are horrific in terms of creditor losses and suffering of the Greeks. But the politics are good. Domestically, Merkel and Schäuble’s right-wing constituents love a hard line. Internationally, Schäuble loves setting up a whipping boy example if any other periphery countries decide to buck Germany’s demands for austerity. And he finds Tsipras’s band of hippie left-wingers distateful.
  • Merkel can go against her voters, or against most of her European and American allies. I still lean 60/40 for Grexit. It’s really the thing most consistent with the whole stupid train wreck so far and it suits the politics. Unlike Tsipras, Schäuble can probably be counted on to see his misguided strategy through to its logical conclusion. But for Merkel’s legacy, economically and for the EU, accepting the abject capitulation makes more sense.

I don’t believe in a Graccident. While it is usually a mistake to attribute to malice what can be attributed to stupidity, stupidity has its limits. Or so I believed, anyway.

Greece, as portrayed by Cleavon Little

If Varoufakis were a hostage negotiator: