Calling Greece’s bluff

by James Mackintosh

Financial Times
February 7, 2012

The best scene in spoof western Blazing Saddles has Cleavon Little’s smart sheriff escaping death at the hands of an angry mob by taking himself hostage.

Lucas Papademos, the Greek prime minister, is in effect holding a gun to his own head. “Next man makes a move, the bonds get it!” Greece’s bluff is to threaten default, which would be awful for Greece – but could lead to disaster for other eurozone states, too.

Europe is wise to the trick, unlike the townsfolk in the movie. European leaders have responded by calling Greece’s bluff, not once but twice.

At the start of November France and Germany rejected the call by Mr Papademos’s predecessor for a referendum on yet more austerity measures, saying that Greece had to decide if it was in or out of the euro. Now eurozone leaders simply accept the Greek threat: if more austerity is not accepted Greece will have to “declare bankruptcy”.

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