For Greece default is the only option

by Costas Lapavitsas

Guardian
January 23, 2012

Negotiations to reduce Greek debt have been suspended after no agreement could be reached last week. At some point in the near future Greece seems certain to default on its obligations. But the drama surrounding the talks in Athens, Berlin and Paris shows that there will be nothing co-operative about Greek default. It is a ruthless contest dominated by the so-called troika: the European Union, the European Central Bank, and the International Monetary Fund.

At every turn the interests and rights of people across Europe have been disregarded. Negotiations have proceeded in secrecy. Greece, whose government is led by an unelected central banker, is represented by a team of politicians and technocrats who have performed lamentably during the crisis. They have hired bankers Lazard Freres and lawyers Cleary Gottlieb, renowned sovereign default specialists, although the benefits remain to be seen. Those who are owed money by Greece have been represented by the International Institute of Finance, a self-styled mouthpiece for bankers. Other lenders, including hedge funds, have no collective representative.

The troika has accepted that Greek debt must be reduced to sustainable levels; but it also wants the reduction to appear voluntary because, if the lenders were coerced, Greece would be declared in formal default, and banks and financial markets would be thrown into crisis. The troika would also like the reduction to be on terms that would allow immediate fresh loans to Greece – an urgent step if the country is not to stop repayments altogether – and wants Greek debt held by official bodies, including the ECB, to remain intact. Not surprisingly, the circle is proving hard to square.

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