We have lost track of the deadline schedule for a Greek default.
First it was March, then various dates in April and now two in early May – it appears to shift depending on what Greece is most likely to default on.
The markets are relatively relaxed as we were here before February when a fudge was agreed with a three-month extension – which is about to expire.
No one is going anywhere near the ‘Grexit’ button, or even threatening to, because the European Union doesn’t want that. Also, Greece’s Syriza-led government could well lose a vote of no confidence if that were to happen, bringing us back to square one.
A new agreement to turn the liquidity back on before the cash runs out in exchange for more commitment to reforms seems unlikely.
Brussels is adept at coming up with last-minute bailout plans that come with various conditions attached to avert a crisis, allowing business to resume as usual.
Take the Cypriot solution, previous Greek measures, the various pre-quantitative easing plans and now the European version of quantitative easing as we recognise it.
They are all fiendishly complex but somehow manage to solve the immediate problem, and everyone saves face and claims some credit for averting disaster. But the problem is still lurking just beneath the solution’s surface.
We suspect something similar is being cooked up with the International Monetary Fund. There is talk of a Greek default but that this will not mean an exclusion from using the euro.
Some have said Greece needs to come out of the euro temporarily and re-enter at a devalued level, with a fixed drachma – rather than floating – being used as the vehicle.
This is theoretically elegant, will reduce its debts and prevent panic if accompanied by capital controls. It will also save electoral face for the Greek government, where there is overwhelming support to retain the euro.
But it is a journey into the unknown and with that comes trepidation.
Any kind of default without a currency devaluation is like running out of money having just refuelled the car, but then expecting it to continue running when the tank runs dry.
It won’t solve the problem as there simply isn’t enough income to sustain the Greek economy, even if interest payments are suspended temporarily.
A currency devaluation is the mechanism by which the country attracts external demand once more, so that an export-led boom results and investors steam in to snap up cheap assets.
Perhaps the idea of a controlled devaluation and temporary euro suspension will keep all parties happy, neutralise any ‘me-too’ desires from other previously bailed-out countries, maintain market order and keep the Syriza government in power, ensuring political stability.
A neat solution but fraught with implementation challenges.
We may be about to see an historic economic experiment put into practice if the authorities have the stomach for it.
More probable, perhaps, is another round of can kicking, but this is becoming a challenging endurance sport. Surely it is time for a solution to move forward.
Guy Stephens is managing director at Rowan Dartington Signature
