Trader Talk

How's that game theory working out, Mr. Tsipras?


How's that game theory plan working out for you, Mr. Tsipras?

Imagine the through-the-rabbit-hole world Greek Prime Minister Alexis Tsipras has found himself in. He has steered his country to two contradictory outcomes. He secured a "no" vote on a referendum that was supposed to get a better deal for Greece, but while he got a third bailout of some 82 billion euros, the terms are even more restrictive than the ones he turned down a few weeks ago.

And remember, there is nothing in these documents that talk substantively about debt reform, Tsipras's central demand, though everyone expects the existing debt to be extended out for decades.

He must now get the Greek parliament to reform the VAT system and pensions, agree to automatic spending cuts in case of excessive deficits, liberalize labor laws and push through further privatizations.

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It's hard to conclude that this has been anything but a colossal miscalculation by Tsipras.

What else can you conclude, when it's clear that defaulting and leaving the euro may be the preferred strategy, not of the Greeks, but of the Germans, who have been pushing a five-year "time-out" for Greek membership in the euro?

Is Tsipras finished? Opinions vary. His majority hold is slim—roughly a dozen votes in Parliament. Some argue that even with a "no" vote on the referendum, he knew he would not get a better deal. Once he failed, he can now come back and say, "I gave it my best shot." Now it's time to push the deal through, restructure his cabinet, and change up the coalition to see if he can survive.

He may be able to steer approval of the new deal through Parliament before Wednesday's deadline, but that's not the hard part. After a bailout deal is concluded, Tsipras will undoubtedly try to reshuffle his government and survive under a new coalition.

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Maybe. But the alternative is exactly what was discussed two weeks ago: Syriza will be thrown out and a national unity government, or a "technocrat" government, will be installed. Another round of elections are likely.

Which is exactly what the Germans and other hard-liners wanted, particularly after the surprise referendum. That was the final straw.

The hope was that a "yes" vote might topple the government, but in the upside-down world we live in, the outcome of the vote ultimately did not appear to have mattered.

Those of you interested in reading exactly what the European Union expects Greece to do can read the 7-page summary here, where there is a link to the Euro Summit statement.