A thesaurus, a thesaurus, Europe's currency for a thesaurus.
For the second time in a week, talks between Greece and Europe have broken down over the semantics of whether a short-term bailout would be an "extension of the current programme as an intermediate step" or an "extension of the current loan agreement, which could take the form of a four-month intermediate programme." The first is what Europe wanted, and the second is what Greece would have accepted. Now, it might seem silly that a disagreement over the order of the words "intermediate" and "programme" could force Greece out of the euro—aren't they just a thesaurus away from a compromise?—but this is a real political problem. Both sides want a deal, but neither wants the other to be able to say they got the better of it. So their rhetoric is hardening, and the game of chicken is still on.
This impasse is pretty simple. Greece's new government has pledged to renegotiate its debt and stop any more austerity—these are not the same thing—but Europe doesn't want to look like it was blackmailed into doing so. That's because Europe is worried if it doesn't extract a pound of reforms from Greece, then anti-austerity parties in Italy and Portugal and especially Spain would also think that they could get what they want just by threatening to blow the euro up. Now, the normal way out would be for Europe's most talented lawyers to come up with some kind of fudge in the most soporific prose possible, so nobody could figure out what was happening and both sides could claim some face-saving measure of success. That's still the most likely outcome. But there's a chance this won't work this time. The problem is the one thing Greece won't compromise on is the one thing Europe won't admit: that the bailout has failed, and needs to be scrapped.
Elections, it turns out, really do have consequences, and so do words. The leftist party Syriza, you see, just won power on its promise to end Greece's old austerity program, and negotiate a new deal with Europe that would give it a chance to actually grow. It's not going to give up on that after just a month in office. Indeed, Syriza has already turned down the bailout money Greece was supposed to get under the existing agreement, because it says that agreement no longer exists. That's why there's such a rush to get a deal done soon. Without one, Greece could run out of cash in the next month or so, and definitely would in the next six.
This is where things get tricky. Syriza needs time to negotiate, but it doesn't want a short-term loan with the same old austerity strings attached. It's afraid that this would just end with those strings becoming permanently attached. That's because Syriza could be in a worse position in six months, if, for example, there's a run on the Greek banks -- in which case, Europe could say, you know what, it'll alter the deal at some point in the future, but for now keep cutting that budget. There's some precedent for this. Back in November 2012, Europe said it would think about lowering Greece's debt payments even more and giving back the money the ECB had made off its bonds. Two years later, that eventuality still hasn't come. So it's no surprise that Syriza wants to escape from the bailout today instead of wait for a tomorrow that may never come. Specifically, it wants the money from the "current loan agreement" without the strings from the "current programme" while they thrash out a new agreement. Europe, of course, wants the opposite. It's afraid that it'll just be throwing bad money after worse if it lets Greece backtrack on its reforms. And with good reason: Syriza has already started to.
But the crazy thing is that a compromise really shouldn't be that hard. Greece has so much debt, Dan Davies explains, that the €317 billion it owes might as well be a million bajillion euros—it's about as meaningful and likely to be paid back. Everybody knows this. The only question is when they can admit it by cutting the interest rates on Greece's bonds even closer to zero and extending the maturities even closer to forever. Well, now seems like a good enough time. Syriza, in other words, probably won't get Europe to exchange its bonds for economic growth-linked ones, like it wants, but it could still get debt relief. (And it would get even more if it makes its bonds eligible for central bank purchases by paying the ECB back).
Then there's the austerity. Greece is already running a primary surplus—that is, before interest payments—of around 1.5 percent of gross domestic product, but that's supposed to go up to 4.5 percent of gross domestic product the next two years. That's nuts. Think about it like this. How much does one euro of spending add to Greece's deficit? Well, that depends on how much it adds to Greece's gross domestic product. Usually that's nothing or close enough to it. The central bank, after all, has its inflation target, which it very much wants to hit, so it would either raise rates to undo any spending it didn't want or wouldn't cut them like it otherwise would have. But interest rates are zero and inflation is far below target right now, all a way of saying that the central bank wouldn't negate anything. More spending would mean more GDP, which would mean more tax revenues—so, when you add it all up, one euro of spending would only add about half a euro to the deficit. That's why, as Paul Krugman points out, another 3 percent of GDP of surpluses would cost Greece about 7.5 percent of GDP itself, a Sisyphean fiscal task. Syriza, for its part, merely wants to freeze this austerity where it already is. That should be good enough for Europe, but it's not clear if it is. Europe said Greece needs to keep running "appropriate primary surpluses ... in line with the targets agreed to," but added that there's "flexibility" here. Whatever this eurocratese means, it's hard to believe that there couldn't be some kind of deal.
The euro crisis repeats itself, first as tragedy, then as even more tragedy. In the last seven years, Greece has gone through a great depression as bad as anything you'll find in the history books. Indeed, its economy has shrunk by 25 percent, about as much as the U.S. did during the 1930s. Some of this was deserved. Most was not. Greece really did borrow too much and lie about how much it was borrowing—although it got some help with that from Goldman Sachs—but it wasn't able to do all this without some equally irresponsible lending. It's been the Greek people who have suffered, though. Now, through it all, Europe has told Greece to cut, cut, cut its way to prosperity, which was a bit of false advertising, but still necessary when it had a big deficit. But now that Greece has a primary surplus, it's no longer so. In a rational world, Greece and Europe would strike a new deal: less debt and less austerity for more reforms to an economy that's the reason the word "sclerotic" exists. But we might not live in a rational world. We might live in one where Europe can't make the compromise it needs to because it doesn't want to admit that a rule-breaker like Greece has a point that the rules haven't exactly worked.
What's the German word for hamartia? They don't even need a thesaurus for that one.