Greece – Game of Chicken May Results in Only Losers

In real life and in movies the game of chicken consistently plays out.  The scene where the hero and his nemesis drive cars directly at each other waiting for the other to blink usually results with a victor.  Unfortunately chicken is all too prevalent in politics and Tsipras and the EU are driving right at each other, poised for a crash.

Who will blink first?

The Greek crisis is coming to a head. The current bailout agreement is running out at the end of the month when the June IMF repayments are due. Tsipras’ continues to bank on the fact that geo-political considerations and Greece’s strategic position in the south-east of Europe will force European leaders into submission eventually. However, with European officials eager to get the IMF back on board and now reportedly discussing Grexit scenarios for the first time, this is a risky gamble and with polls suggesting that a majority of Greeks wants the government to accept creditor demands if necessary, pressure on Tsipras is mounting.

Capital Market Event Risk

The same game of chicken is also being played out in the capital markets. Markets continue to buy into Greek optimism of an imminent deal, even though it should be clear by now that any announcement of a quick deal from Greece so far has been more wishful thinking than a reflection of progress in the negotiations with Greece’s creditors. IMF, pullout and EU and ECB comments highlight that the parties are not even close to a staff level agreement yet.

There will also likely be some sort of debt relief by the end of the month, although this will almost certainly take the form of an extension of payment schedules as well as another cut in interest rates, rather than official haircuts. While negotiations drag on, time and money is now really running out. Tsipras narrowly fought off demands by his own coalition to prioritise pension and wage payments.

Pressure to keep Greece in the EU and Eurozone

The biggest pressure to keep Greece within the Eurozone, however, may come from the heads of states even in Germany. A key reason for the eagerness to have Greece in the EU as well as the Eurozone always has been Greece’s strategic position in the south-east of Europe. Greece is a highly armed country and closer ties with Russia at a time when the tensions between Russia and the EU are still simmering, is something even the German defense minister or Merkel for that matter would not want to see.

Losers all around..

Chicken in the movies is a game where there is usually a winner and a loser, but for the loser usually it’s a scenario where his pride is ruffled.  In this case of chicken there are likely to only be losers.  Greece despite the desire of her people to stay in the EU might in fact have to leave, while Germany and France could be saddled with huge sums of debt which could cripple their economies.

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