Greece's MAD Strategy

by Thomas Wright

Foreign Policy
June 11, 2012

On June 17, Greece faces its second national elections in six weeks. Alexis Tsipras, the 37-year-old leader of Syriza who wants to reject the terms of the EU bailout while remaining in the euro, has a serious shot of topping the polls. To some observers, defaulting on debt while staying in the Euro is a contradiction, but there is a clear strategic logic to Tsipras's position.

Tsipras believes his trump card is that Greece is too big to fail. So, rather than touting a graceful way out of the euro, he wants the prospect of a Greek exit to be as horrific and contagious as possible -- an economic cataclysm that would drag everyone else down, as well. Essentially, he is arguing that Greece and Germany exist in a state of Mutual Assured Destruction: Germany will never pull the plug on Greece regardless of what it does because the risk to itself is just too high. And if Tsipras can convince the Greek people of this, they may vote him in -- they'd get to have their cake and eat it too.

Tsipras explained this logic in an interview on the British television station Channel Four, saying, "I believe we find ourselves in a situation equivalent to the one the U.S. found itself in with Russia, back during the days of the Cold War. Both sides had nuclear weapons in their hands and both sides threatened to push the button and activate. When you have a Cold War, neither side will back down, so now we don't expect Mrs. Merkel or Mr. Cameron to back down either. We are quite sure that when the time comes, logic will prevail, and they will not activate their nuclear weapons."

The nuclear weapon in this analogy is exit from the euro, not rejection of the bailout. In this view, the threat of mutual destruction provides Tsipras with an umbrella to do anything he wants -- short of exit from the euro. Germany and the European Central Bank (ECB) can never force Greece out because the contagion resulting from a "Grexit" could cause the collapse of the currency: The redenomination of international contracts would destabilize the entire financial system, European banks have exposure to Greek debt, and markets would likely move on to other members of the periphery.

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