Τρίτη, 29 Μαΐου 2012

A realistic flowchart for Greece after the June 17th elections

There are many popular "flowcharts" that illustrate the endless scenarios about what is next for Greece, after the June 17th elections, the second time within a few weeks, amid an economic havoc.

Here is my view of it. I call it "realistic" because it focuses on events and decisions, rather than scenarios. It does generate several possible scenarios, but that's for anyone to choose from:

What happens to Greece next? (flowchart)

The flow starts from the creation of an elected government, which does not exist right now. What this government does next is a matter of how strong it feels about making a stand against the troika and the memorandums of austerity.

The left branch illustrates the paths followed if a very weak or  pro-troika government is formed. This essentially means a ND-PASOK coalition with more than 150 seats in the parliament. The new austerity measures are more or less ready to be implemented, the core work of Lukas Papademos' (previous) government. If the new austerity succeeds and the Greek economy survives(?), then Greece's place in the Eurozone is secured at the cost of even more depression until 2015 (at the very least).

On the other hand, if the new austerity fails yet again, which is very probable, the crucial point is if and when a possible "another try" can be attempted. This is exactly what happened in Greece, two times now, with the governments of PASOK (Oct. 2009 - Nov. 2011) and PASOK-ND (by Papademos, Nov. 2011 - May 2012), both failed in the troika-guided austerity strategy for Greece's economic recovery. A third attempt was made with the May 6th elections, but this time no solid government was formed. So now, on June 17th, the forth attempt is to be made. Of course, if Greece's economy crashes completely in the meantime, everything changes (see: "Greece in total crash" route).

The right branch illustrates the paths followed by a pro-left and against-troika government. Right now, SYRIZA and other left parties, as well as right- and far-right and against-troika parties, are on the rise.There are two options here: (a) a relatively weak or moderately strong government, or (b) a strong government. In (a), Greece sends a very strong signal to the troika and EU that the current plan must change; but essentially this is a "draw" in the standoff, because no unilateral actions can be made. In (b), the government is strong enough to support an all-out war against the austerity memorandums, despite what the troika and other EU governments feel about it.

A special layout of events is illustrated in the far right flow, where Greece decides to unilaterally cancel some or all of the current arrangements with the troika and the ECB. In this case, the troika/ECB may or may not decide reciprocal actions against Greece, according to the cost of such actions for the rest of the EU economy. In essence, if ECB decides to drain the Greek economy from euro, it can do so, via draining the Greek banks; but this means that Greece is forced to use some alternative currency, a national ("drachma") or some foreign one (some say US dollar). In any such case, the Greek government must act and seize control of the local currency flow and foreign exchange to support the new currency and the deposits in the banks, which means that a very large portion of the banking sector (and the Bank of Greece of course) become national. All these events constitute the basis of the "exit from euro" storyline.

The four scenarios


For the most part, the critical factor in the illustrated flows is the possibility of a new bailout plan for Greece in each case in the "middle". That is, whether a new deal or a new rescue is possible for Greece if its economy crashes or if a new anti-troika government comes to power and wants to renegotiate.

As I stated earlier, there are endless possible scenarios with the flowchart above. At the very least, the "austerity-fail-retry" cycle (far left) has already happened 2-3 times and, in theory, it can happen many more times (although yet one more failure will probably be fatal). But in the end, there are only four major scenarios for what comes next for Greece.

Scenario 1: Pro-troika government, more 'memorandums'


This is the "Greece swerves" case. PASOK and ND secure 150+ seats in the parliament, reinstate their power and create a coalitional government in full cooperation with the troika, as they did up to now. There is a small chance that this time the "plan" will succeed, but a much bigger chance that they will end up in yet another failure, as they have been doing for two years now, for whatever reason. But this time the failure may be fatal and Greece's place in the Eurozone may have been secure for only a few months or a year at most, before a total crash and a failure to provide a new bailout plan, especially when the EU economy will have much less to loose from such an event.

Scenario 2: "Protesting" government, new negotiations


This is the "draw" case, where the new Greek government has won a public vote of protest, but still is too weak to go head-to-head with the troika. This means that the EU, IMF and ECB will have to make small adjustments to the 'memorandum' plans, while the Greek government will be happy to secure some, if any, small 'wins'. This is the case where neither pro-troika or against-troika coalitions can form a viable government and need support from opposing parties.

Scenario 3: Strong anti-troika government, wins the standoff


This is the case of a strong anti-troika government that is capable (and obligated, from the public vote) to go into full 'war' with the troika, demanding major changes or complete abolishment of any previous arrangements, even unilaterally. In this case, "Greece wins" the standoff and secures a major retreat by EU, IMF and ECB.

Scenario 4: Strong anti-troika government, negotiations fail


This is the far-right branch of the flow, where the Greece-troika standoff ends up in a mutual 'destruction': EU and IMF exclamate and decide to pull off from Greece completely, ECB refuses and loans to Greek banks and the euro is drained form the Greek economy. Of course the means that the ECB violates the most fundamental laws of the EU itself, so Greece feels it can righteously go to retaliatory actions, namely abolish any previous arrangements and refuse to pay any loans, essentially declaring the national debt as 'void'. The EU economy crashes together with Greece's, ECB tries to leverage the situation, while Bank of Greece inevitably goes under complete state control (along with most of the private banking sector) and a new alternative currency comes into internal circulation. Of course, the Eurozone as we know it is a long gone memory by now.

...And some probabilities


It is very difficult to make any predictions right now for the outcome of the next elections in Greece, especially while the latest poll results show ND and SYRIZA, the main opposing parties, being in a tie at the top with roughly 23% each (late May 2012).

However, the chain of events according to the flowchart above and the four main scenarios seem much more stable and predictable. At least two of them, the one with a strongly pro- and strongly against-troika government are very unlikely. Therefore, the real question is mostly between the 2nd and the 3rd scenarios. The probabilities below are my own estimations, based on the current exit polls (end of May) and each party's statements about the next day.
  • Scenario 1: 18% (Greece 'swerves', Troika 'fights')
  • Scenario 2: 33% (Greece 'swerves', Troika 'swerves')
  • Scenario 3: 37% (Greece 'fights', Troika 'swerves')
  • Scenario 4: 12% (Greece 'fights', Troika 'fights')
If these scenarios are broken down into two-part probabilities, one for the troika's intentions and one for Greece's intentions, the numbers for the "chicken" game intentions are approximately:
  • Troika: swerve 70%, fight 30%
  • Greece: swerve 53%, fight 47%
These "mixed strategies" for Greece and the troika are only rough approximations, as the numbers show. Additionally, a very fresh voting result against the troika will only strengthen the position of an anti-troika government, which will have a much more credible "threat" to present against the other side. Of course, this means that it should be ready to support such a claim, if things go very bad (scenario 4).

A final note: the double currency option


There is much talk about Greece adopting a double currency standard, as the median solution between unconditional surrender to the troika and an all-out war outside the Eurozone. This idea is not new, it has been around since the summer of 2010, when things already had started to go bad for the Greek economy. In fact, this is the standard solution for almost all the poor developing countries, mostly in Africa (colonies of the past), where the "external" economy works with US dollars or some other foreign currency, while the "internal" economy struggles with an extremely weak national currency.

Having the external debt and all the imports-exports in some foreign currency, while the people in the country get paid in "junk" money is by far the worst outcome for the country itself. But it is, however, the most probably outcome when it comes to a "draw" between the troika and Greece, or a "near win" for Greece. The EU, the IMF, the USA, everyone wants (and needs, at least for now) Greece in the Eurozone. That is a fact that no one can deny. But at the same time they would all gladly get rid of Greece if they could. Which means that, given time to fortify and build the necessary "firewalls", this may easily happen in 1-2 years from now. Afterall, as early as 2010, high-ranking officials in the Eurogroup have stated (unofficially of course) that they can safely force Greece out of the euro, if needed, in the year 2015 and beyond.

In practice, a double currency in Greece serves the two major factors for the troika: (1) secure the current debt and loans in euro, and (2) provide the necessary time for a safe exit of Greece from euro at some later time. On the other hand, it can have a positive effect to the suffocated internal economy, but only temporary, since the ravaging inflation will soon wipe out any growth. This is exactly why no one in the EU discusses this option openly. It is the solution of choice for them, especially if the anti-troika movement grows in Greece and the rest of the EU south, with the "double currency" option presented as the golden compromise between the two opposing parts, when in reality it is a trap.

If things go as described above, with scenarios 2-3 as the most probable (about 70% probability in total), and Greece not miraculously transforming into a healthy economy within the next year (the most unprecedented economic comeback in human history), unfortunately this is what will probably happen next. And in fact, this is exactly what happened in Argentina, with IMF's blessings, when the country essentially adopted US dollar. A few months later, the IMF decided to leave the country, all loans went down the drain, the economy collapsed completely, and the country went back several decades within a weekend.

I don't know if this is the future for Greece too, but we all know the saying:
"Those who do not know the history, they are doomed to relive it."