Following the frenzied speculation prompted by Friday’s Spiegel Online report that Greece was involved in secret talks in Luxembourg about the possibility of it leaving the eurozone, the only thing that was missing was Finance Minister Giorgos Papconstantinou standing outside the medieval chateau where several eurozone officials were in discussion and telling reporters that no meeting was actually taking place.
The whole episode was poorly handled – at the same time the European Commission was denying any meeting, the Germans were confirming there was one. This only added to the jumpiness that already exists within Greece and other eurozone countries as well as on the international markets.
The idea of Greece leaving the euro requires a leap of imagination but it’s only to be expected that analysts in darkened rooms at finance ministries across the EU are trying to assess the impact on such scenarios. There is a considerable distance between crunching some numbers and crushing the hopes of maintaining a stable single currency. But what is not clear so far is to what extent Greece brought this speculation and panic on itself.
Has the government in Athens been trying to call its partners’ bluff? Has it tried to scare the Germans and the others into cutting it some slack by threatening to pull out of the euro and not giving a damn about the consequences? Prime Minister George Papandreou’s demand on Saturday for the EU and everyone else to “let Greece get on with its job in peace” could certainly be interpreted as the frustrated reaction of the leader of a government that is coming under constant external as well as internal pressure. Papandreou and his team may feel that unrealistic demands are being made of them in terms of the reforms that need to be introduced given the inertia of the previous decades, and the targets that need to be met given the disastrous state of the economy.
Of course, Papandreou’s anger could be the result of the constant – “almost criminal” as he said – speculation about Greece and what its next move is going to be. There is a strong feeling that investors – or speculators, if you prefer – are seeking to make a fast buck on the back of Greece’s difficulties. To this extent, the Spiegel report certainly created a moment of chaos that those seeking profits could have exploited.
Although Greece’s exit from the euro seems far-fetched, the Spiegel report does quote unnamed sources at Germany’s Finance Ministry. That German officials felt the need to brief journalists on this issue at this stage could point to a frustration with any wavering or brinkmanship from Greece. It bears the hallmarks of an attempt to embarrass a Greek government that may have raised exiting the euro as an option. If the Germans leaked this it was likely to be a move designed to take this scenario of the table.
The Luxembourg meeting appears an attempt to focus minds on the possibility of Greece restructuring its debt. When and how this could happen remain two very big unanswered questions. An interesting hypothesis was developed by Reuters blogger Felix Salmon a few days ago. It centers on the possibility of a “light dusting” or soft restructuring and seems to suggest that there is a way of Greece easing its debt burden without paying a heavy price or triggering a knock-on effect in the Credit Default Swap market. It seems much more productive, and better for everyone’s heart rates, to focus on discussions like this rather than the talks that may or may not be happening behind closed doors.