The economic case for a debt default is overwhelming. It is hard to see how Greece can ever service its debts as agreed. Even in the creditor countries few people are under illusions about Athens’ long-term debt-servicing capacity. Full servicing would require huge primary surpluses — that is, surpluses before payment of interest on debt. It would leave Greece trapped in a debt depression for a long time. The scheduled primary surplus for 2016 is 4.5 per cent, which is bordering on the insane. Athens absolutely needs to default.
What is worrying is that the talks are not going anywhere. This is why speculation about an agreement in the summer or the autumn is ultimately not reassuring. Particularly puzzling is the Greek negotiating strategy. On the substance, I tend to agree with finance minister Yanis Varoufakis: the eurozone’s economic crisis management has been catastrophic. Under present parameters, it is fundamentally unsustainable. But I do not understand why he spends so much time preaching to those who tend to agree with him at prestigious conferences in pleasant surroundings. Should he not be working on the hard negotiations with his European creditors, and on the two plan B scenarios?
Both Grexit and the option of a default inside the eurozone would stretch the resources of even the most organised government. It would require military-style preparation: exchange controls, temporary closure of land borders and airports, overnight bank recapitalisation, and logistical planning to convey money from A to B on D-Day. Is the Greek government really so smart it can just wait until the fateful moment arrives, and then manage this whole process in real time with no script?
I think I know the answer to that, and wonder whether one or more people on both sides of these discussions may simply be miscalculating. We may be on the verge of one of those sleepwalking moments in European history.