Greece Plays ‘Let’s Make a Deal’

Here is your obligatory Greece update: A mere four business days after 61% of Greek voters rejected the austerity conditions demanded by the EU/IMF/ECB (the "troika") in exchange for extending Greece's second bailout, it seems a third bailout deal may be at hand.^[i] A deal containing much of the very same conditions voters just shot down.

All this follows some rather entertaining revelations earlier this week regarding Greek Prime Minister Alexis Tsipras' actual motivation in announcing last weekend's bizarre referendum to approve-or-reject a deal that was neither on the table nor translated correctly. As reported by The Telegraph's Ambrose Evans-Pritchard , Tsipras never expected to win the July 5 referendum on austerity, instead planning to dissolve his government after the citizenry voted for austerity and against his position and letting a caretaker administration deal with the unpleasant cleanup job. After the vote, according to Evans-Pritchard, Tsipras moped around the Maximos Mansion,^[ii] wondering what to do. We can't say this happened at that moment,^[iii] but according The Wall Street Journal, sometime shortly after the vote, French President FranÇois Hollande telephoned Tsipras, offering support and urging him to capitulate ... quickly ... and put forward a serious proposal soon.

That proposal has now been made. And it looks eerily similar to the terms the voters rejected days ago, with one major difference. Here is a side-by-side view of the major terms:

Exhibit 1: The Great Greek U-Turn?

Sources: The Wall Street Journal, Kathimerini, Bloomberg, EUBusiness, as of 7/10/2015 at roughly 9:49 AM Pacific Daylight Time, which we figure is an important disclosure to make as all this could change.

The major difference is highlighted in red: debt restructuring. Athens has long sought a third haircut (a euphemism for "default"), though the troika has been reluctant. However, France's Finance Minister Michel Sapin publicly supports the plan and German Chancellor Angela Merkel has been coy on the subject lately. This time, Greece is requesting a reprofiling, perhaps involving maturity extensions, interest rate cuts and other measures designed to mitigate the debt's impact, but short of an actual write-off.

Not everyone is meeting this proposal joyously. Dutch Finance Minister (and head of the "Eurogroup" of eurozone fin-mins) Jeroen Dijsselbloem called it, "an extensive piece of text." Which seemingly falls somewhat short of a ringing endorsement. Even within Tsipras' Syriza party, not everyone is thrilled. Greek Energy Minister Panagiotis Lafazanis, said, "The proposals are not compatible with the Syriza program."

Which brings us to the next step. As we type, Tsipras is attempting to unify support within Syriza for the package ahead of a parliamentary vote, which he's holding before EU deliberations begin so he can show he means business.^[iv] The Greek center-right opposition party, To Potami, has stated they will vote for it, but that isn't surprising considering they were for the earlier proposals, too. Other pro-euro parties like New Democracy, which headed the prior administration, also seem on board. Will they succeed? Will the troika approve the plan? Will Greece get a haircut? Will it all fail and Grexit happens anyway? Tune in next week^[v] to find out!

Ultimately, our view is unchanged: All the dramatics here obscure the fact whether Greece strikes a deal or not is political theater, with little market impact.