Greek Non-Drama – Has Syriza Really Given Up?


Greek Government Seemingly Blinks

Alexis Tsipras has tried his best to sell the outcome of Greece’s negotiations with the EU to his voters over the weekend. As far as we can tell, the Greek government hasn’t achieved even a single one of its aims so far. The bailout was extended by four months, but in spite of a few cosmetic changes to the wording accompanying it (e.g. the “troika” has been renamed “the institutions”), it is still precisely the same bailout agreement as before.




Yanis Varoufakis and Alexis Tsipras. What’s the plan?

Photo credit: Alkis Konstantinidis / Reuters



Not so, avers Tsipras. Here are a few quotes from a televised speech he delivered on Saturday, as reported by Reuters:


“Yesterday we took a decisive step, leaving austerity, the bailouts and the troika,” Tsipras said in a televised statement. “We won a battle, not the war. The difficulties, the real difficulties …are ahead of us.”

Tsipras and his Syriza party won power last month on promises to end Greece’s EU/IMF bailout program and end cooperation with the hated “troika” — inspectors from the European Commission, European Central Bank and IMF who have monitored Greece’s compliance with its austerity and reform commitments. Instead Athens was forced to accept the conditional extension of the bailout and still deal with the troika, renamed in the deal as “the three institutions”.

Nevertheless, he said: “Yesterday’s agreement with the Eurogroup … cancels the commitments of the previous government for cuts to wages and pensions, for firings in the public sector, for VAT rises on food, medicine.”

Tsipras, a radical left-winger, had been under heavy pressure to secure a deal as Greeks have been pulling huge sums out of the country’s banks, fearing the talks with euro zonefinance ministers would fail and Greece would be cast adrift as the bailout had been due to expire on Feb. 28. Without naming names, he attacked conservatives at home and in the euro zone. “Yesterday we averted plans by blind conservative powers, within and outside the country, to asphyxiate Greece on Feb. 28,” he said.

About 1 billion euros fled Greek bank accounts on Friday, a senior banker told Reuters, due to savers’ fears that Athens might have to halt such withdrawals or prepare to reintroduce a national currency. Greece says Friday’s extension should calm such fears.

“Greece achieved an important negotiating success in Europe. We showed determination and flexibility and in the end, we achieved our basic goal,” said Tsipras.


(emphasis added)

This sounds like a fantasy. This is the first time we are hearing that many of the previous government’s commitments have actually been canceled, but maybe we have misunderstood something. It seems more likely that Mr. Tsipras is taking some license with interpreting the agreement that was struck on Friday.

Readers may recall that we have already wondered whether the dispute between the Syriza government and the EU was scripted beforehand, with the outcome preordained (see “Greece and the EU – Nothing But Political Theater?” for details). Nothing that has happened so far has done much to dispel this impression.

As an aside, the financial markets appear to have anticipated the outcome of the negotiations to some extent (see the charts immediately below). It seems likely that Greek government bonds and the Athens General Index will rise further on Monday, although the agreement has not been fully consummated yet. The Greek government must still submit a list of reforms it intends to implement to the EU, and the bailout extension must subsequently be approved by the parliaments of EU member states.


1-Greece 10-Year Bond Yield(Daily)Greece, 10-year government bond yield. The markets have been relatively unconcerned for several weeks already – click to enlarge.


2-ATGThe Athens General Index has actually put in a low shortly after the Greek election – click to enlarge.


Has SYRIZA Really Given Up on the Haircut?

Voices inside and outside of Greece are busy denouncing the Syriza government’s failure to deliver on its unrealistic election promises. A few examples:


“German Finance Minister Wolfgang Schaeuble told reporters on Friday that the Greek government would have a difficult time explaining the deal to its voters. “Being in government is a date with reality, and reality is often not as nice as a dream,” he said, stressing that no aid payment would be made until Athens properly completed its bailout program.”


“Top Marxist members of Tsipras’s Syriza party, a broad coalition of the left, have so far been silent on the painful compromises made to win agreement from the Eurogroup. But veteran leftist Manolis Glezos attacked the failure to fulfill campaign promises. “I apologize to the Greek people because I took part in this illusion,” he wrote in a blog. “Syriza’s friends and supporters … should decide if they accept this situation.”


“No propaganda mechanism or pirouette can hide the simple fact that they lied to citizens and sold illusions,” said Evangelos Venizelos, leader of the socialist PASOK party.”


(emphasis added)

However, as far as we can tell, all that has so far happened is that the Greek government has bought itself some additional time. The timetable was getting very tight after all: If no bailout extension had been agreed on by the end of February, the ECB would likely have cut off ELA funding to Greek banks, and chaos would have ensued. Undoubtedly the EU’s negotiators impressed on Mr. Varoufakis that the Greek government could be faced with a very difficult situation that would require taking all sorts of emergency measures post-haste and could easily spiral into an intractable crisis.

In other words, even though things have developed as one would expect of the entire “confrontation” was nothing but political theater, it is not certain yet that this interpretation is actually correct. If the Syriza government has come to the conclusion that it wants to rather default and exit the euro than to continue adhering to the conditions of the bailout, it would still be in a better position if it gained some time to prepare for the event.


3-Greek banks, CB fundingEuro-system funding to Greek banks has soared to € 68.3 bn. in recent weeks, in the form of ELA (emergency liquidity assistance) following the ECB’s decision to no longer accept Greek debt as collateral in repo transactions – click to enlarge.


The prospect of ELA being switched off upon a failure of the negotiations would have led to a further acceleration in deposit flight from Greek banks. The government would likely have quickly imposed capital controls in that event. However, it needs to be remembered in this context that this is an inexperienced government, and some of its most important cabinet ministers – Mr. Varoufakis being the most prominent one – are not really politicians. This fact was bemoaned by assorted EU politicians in recent weeks, but we actually regard it as refreshing (even though we think Syriza’s leftist economic ideas are extremely misguided).

Below is a chart of the deposit liabilities of Greek banks, with our estimate of the January-February outflows added (the Bank of Greece has still not updated the data since the end of December, so one cannot be certain how much money has been withdrawn). Our estimate could well be on the high side – it is possible that actual withdrawals were a bit smaller. We simply extrapolated the previous pace of outflows (as of mid January, it was estimated by various sources that some € 23 bn. had been withdrawn since the first week of November 2014).


4-Deposit liablities, Greek banks,plus estimateDeposit liabilities of Greek banks – our estimate of additional outflows since the beginning of the year have been added in green. This assumes that another €15 bn. have been withdrawn since mid January – click to enlarge.


It is interesting that the four-month extension of the bailout will keep Greece afloat until shortly before its biggest 2015 debt payments are coming due (these are bonds held by the ECB which it bought in the course of the SMP). Zerohedge has recently posted a chart on the 2015 debt redemption schedule. Over a longer time horizon, 2015 is actually a comparatively big year in terms of debt payments. There will be a noticeable slowdown in redemptions in 2016 and 2017, but a re-acceleration thereafter.

In the course of the current “extend and pretend” scheme, the bulk of Greece’s debt payments have already been pushed so far into the future that it is absolutely certain that much of the debt will be worth only a fraction of its present value by the time it needs to be paid. The largest repayments are coming due in the 2040s and 2050s:


5-Amortization scheduleAmortization schedule of Greek debt: 2015 is a big year, but large chunks of the debt repayments have been rescheduled far into the future, with some payments only coming due in the late 2050s – click to enlarge.


Given that the biggest chunks of the 2015 repayments are due after June, the end of the bailout extension period would be the best moment for a default and “Grexit”. The Greek government would have four months to prepare for the event, which would likely involve capital controls, a “bank holiday” and an overnight return to the drachma, with existing deposits in Greek banks subject to redenomination. From the government’s perspective, it would no doubt be preferable if money that has been withdrawn since November were to flow back, and if it succeeded in increasing tax revenues. Syriza’s election victory has severely dented tax revenues, as many Greek citizens stopped paying certain taxes in the expectation that they would be repealed (such as the property tax that was introduced by the previous government as part of the bailout conditions).

Greek government debt outstanding totals €321 billion, an enormous amount for a country with 11 million inhabitants and a moribund, overtaxed and extremely over-regulated economy. The temptation to default in order to get rid of this debtberg is surely great. Under the standard assumption of a 40% recovery rate, it could be cut to €128 bn. post default, just below 60% of GDP compared to nearly 180% at present.

On the other hand, the Greek government is probably aware that the currently projected economic recovery would be put at risk by a default and the imposition of the associated emergency measures. To this it must be pointed out that the EU’s economic projections could easily turn out to be wrong. Nevertheless, they probably play a part in the Greek government’s calculations.


6-Greec e-financial aidOnly about €70 bn. of Greece’s total public debt are in the hands of private creditors, including Greek banks. The remainder is owed to the EFSF, the IMF, the ECB and individual euro zone governments. Presumably the government would nationalize the banks in the event of a default – click to enlarge.


7-Greek data

The European Commission’s forecast for Greece’s economic growth, exports and unemployment over the coming two years appear quite rosy. Given the much smaller base (GDP has plunged from approx. €342 bn. at its 2009 peak to €242 bn. last year), it is certainly possible that these targets could be achieved though – click to enlarge.


It is a bit suspicious that the Greek government has suddenly abandoned almost all its demands. The inner dynamics of Syriza and its coalition partner are opaque, but it is clear that the left-wing hardline factions in Syriza cannot be happy with the outcome of the negotiatons. Whether there is a secret plan to ultimately flaunt the agreement anyway remains to be seen, but it cannot be ruled out yet.



The bailout extension agreement between Greece and the EU makes it appear as though everything has been settled in accordance with the troika’s wishes. However, it is actually not yet certain whether a Greek default and exit from the euro zone has been averted for good. Ultimately it could well turn out that it has merely been postponed a bit.

It is difficult to tell how much influence the “pro-exit” factions in Syriza actually have and how sympathetic Mr. Tsipras is to their views (in the run-up to the election, he became known for seemingly changing his mind on the topic several times per week). Unfortunately we are not mind-readers, so we can at best guess at his intentions. It seems clear though that even if an eventual default and euro exit are planned, the government would likely still have opted for obtaining a period of reprieve in order to make the required preparations. In short, the agreement of last Friday may not yet be the end of the story.


Addendum: Who’s Who in Syriza’s Left Wing:



Minister of “Productive Reconstruction, Environment and Energy” Panaghiotis Lafazanis: a Marxist who reportedly heads Syriza’s far-left faction. He is on record for favoring a default and an exit from the euro. He is probably the most radical influential party member.

Photo via



Deputy prime minister Yannis Dragasakis: a Marxist and the only cabinet member with experience in government (he served as deputy finance minister for five months in late 89/early 90).

Photo via

  11-giorgos-stathakis-kubernisi-syriza-upourgos-oikonomias-ypodomon-nautilias-kai-tourismouMinister of Economy, Infrastructure, Shipping and Tourism Georgios Stathakis. An economics professor and (reportedly) former Communist Party member.

Photo credit: Intime News


Charts and data by:, BigCharts, Acting Man, Bank of Greece, Der Spiegel