Greek voters will support the creditors – and Syriza will fall

Monaco – Being away from the din of daily life has its advantages. Presently, I’m at the wonderful Fund Forum International Conference in Monaco, having designed several war games to play with the attendees, which illuminate how geopolitics can impact investment decisions. Beyond enjoying new and insightful company, a startling clarity – achieved only by watching it from afar – about the Greek crisis seems to have come over me.

 

Just as conventional wisdom entirely underestimated the chances of a Grexit car crash all along, now it seems to have fatuously assumed that Greek Premier Alexis Tsipras will effortlessly win the referendum he has called (and has refused to call off), which detonated the Greek time bomb. Without informing his European negotiating partners in advance, Tsipras theatrically stalked off, demanding a plebiscite on the creditors’ terms, hoping a ringing No vote would bolster his position, and pressure and shame Europe into offering him the debt relief he so desperately needs.

 

There is one big flaw with this strategy: suppose the Greek people do not go along? I think that Tsipras, Syriza, and the vast majority of commentators have badly miscalculated; the Greek people are going to vote Yes in the plebiscite.

 

The reasons for this are simple. If you are going to live in increasing desperation anyway, would you rather do so in the context of relative stability or chaos? As a thought experiment, those who have banked on a No vote should try going without a banking system for a week or so. It’s not love for Europe that will propel the Yes vote (in Greece, Chancellor Merkel and the rest of the creditors are increasingly personally despised), but simply a yearning for stability, and a fervent desire to remain to be seen as a member of the developed world, that will carry the day.

 

Never underestimate the ability of the overrated Greek Prime Minister (and his even more feted-for-no-reason henchman Yanis Varoufakis) to get things wrong. By all accounts, it was the Greek finance minister who convinced Tsipras to head down the road of the plebiscite gambit in the first place. Varoufakis may be in the business of game theory, but no one has said he is any good at it.

 

For a key factor in understanding how war games work is that, before acting, one must be absolutely certain that the facts underpinning policy strategies have been checked and double-checked. And this the Syriza government has singularly failed to do. A number of local polls taken as the crisis has come to a climax state that around 57 per cent of Greeks will vote Yes. The blithe given underlying all of Tsipras’s and Varoufakis’s actions is that they can drive Greek opinion by advocating a No vote; what if this is simply wrong?

 

For at last reality is closing in on the Greek government. The Greek people can have Syriza or the euro, but not both. Unwittingly, this is the first diplomatic break that has gone the gormless European creditors’ way in a long time. Seeming to have at least partially woken from their long intellectual slumber, the creditors have indicated a new deal (and implicitly the longed-for debt relief) will be on the table for Greece following a Yes vote. Ironically, through their comical machinations, Syriza will have managed to secure Greece the better terms that have so dominated these past months.

 

But by then, while both Tsipras and Varoufakis will presumably say that this outcome is what they had in mind all along, they will be long gone. For the price of such a deal is Syriza’s head on a platter. And here the inflexible creditors have a point. They simply cannot trust a negotiating partner that has so openly flouted any form of conditionality to then live up to the terms of any new bailout. By not understanding how the world works, Syriza’s days in power are likely to be numbered.

 

But beyond the immediate drama, the perception of the irreversibility of euro membership has been fatally damaged, with the whole project now being viewed as merely some sort of exchange rate mechanism. Europe has been tarnished, another step on the road to the continent’s absolute decline. Greece’s bluffing, overly-confident government may have met its Waterloo, but it is not the only political entity which has passed its zenith.