Trader Talk

Brinksmanship: Is the EU Negotiating With the Wrong Parties?

The "Europe" sculpture by Belgian artist May Claerhout, showing a woman holding up the symbol of the Euro, stands outside the European Parliament building.
Adam Berry

Greek brinkmanship: Is the European Union negotiating with the wrong parties?

Will the Greeks get the 130 billion euro ($169 billion) bailout at the euro zone finance ministers meeting on Monday, or not? There are three possibilities: 1) no; 2) yes, with an escrow of some sort (unconditional yes in off the table); or 3) approval of just the private sector involvement (PSI) deal or some other part of the overall package.

The concern is that after the Greek elections in April, the Greeks may attempt to renegotiate the deal. The EU leaders want to pre-empt that possibility by getting the two major parties to sign an agreement that they will enforce the austerity package signed on Sunday, regardless of the outcome.

Here's the problem: The EU may be negotiating with the wrong parties.

There's an entire mini-industry that is parsing Greek opinion polls. New Europe newspaper reported this morning that the three left-wing parties not part of the current coalition would win almost 40 percent of the votes if the election were held today.

All of these parties are opposed to the austerity bill voted on Sunday. The right-wing LAOS party has also recently defected from the coalition and now appears to be opposing the austerity bill, as well.

What are the odds that the EU will be able to get these Greek opposition parties to sign a letter pledging to uphold the austerity bill after the election? What do you think?

This means that the EU may confront a hostile coalition after the election.

Bottom line: While a partial deal might still happen, it's clearly in everyone's interest to come to an agreement on a complete package earlier rather than later.

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