epa04843942 Greek Prime Minister Alexis Tsipras (C) talks with German Chancellor Angela Merkel (L) and French President Francois Hollande at the start of eurozone leaders' summit on the Greek crisis at the European Council headquarters in Brussels, Belgium, 12 July 2015. Greece is teetering on the edge of default, cut off from bailout aid, in arrears to the International Monetary Fund (IMF), owing large debt repayments this month and fending off suggestions that it could soon exit the eurozone. EPA/OLIVIER HOSLET

Alexis Tsipras should never have hired Yanis Varoufakis as his finance minister. Or he should have listened to him, and kept him on. But instead the Greek prime minister chose the worst of all options. He followed Mr Varoufakis’ advice of rejecting the offer of the creditors — until last week. But having done this, Mr Tsipras committed a critical error by rejecting Mr Varoufakis’ plan B for the moment when the country’s banks closed down: the immediate introduction of a parallel currency — IOUs issues by the Greek state but denominated in euros. A parallel currency would have allowed the Greeks to pay for their daily transactions when cash withdrawals were limited to €60 a day. A total economic collapse would have been avoided.

But Mr Tsipras did not go for this, or indeed any other plan B. Instead he capitulated. At that point, he was no longer even in a position to choose a Grexit — a Greek exit from the eurozone. The economic precondition for a smooth departure would have been a primary surplus — before debt service — and an equivalent surplus in the private sector. Greece has no foreign exchange reserves. If the Greeks were to reintroduce the drachma, they would have had to pay for all of their imports with the foreign exchange earnings of their exports. These minimum preconditions were in place in March but not in July.

So, like his predecessors, Mr Tsipras ended up with another very lousy bailout deal. And this one suffers from the same fundamental flaws as its predecessors. This leads me to conclude that Grexit remains the most likely ultimate outcome after all.

There are three principal ways in which this can happen. The first is that a deal is simply not concluded. All that was agreed last week is for negotiations to start, plus some interim financing. A deal might fail because principal participants themselves are sceptical. Wolfgang Schäuble, the German finance minister, says he will keep up his offer of a Grexit in his drawer, just in case the negotiations fail. Mr Tsipras denounced the agreement on several occasions last week. And the International Monetary Fund is telling us that the numbers do not add up, and that it will not sign unless the European creditors agree to debt relief.

The Germans refuse any discussion on this subject, citing some trumped-up rules according to which eurozone countries are not allowed to default. This is legal hogwash, but I suppose the purpose is to describe new red lines in the negotiations.

My hunch is that they will ultimately fudge a deal, but that will come — as it always does — with overwhelming collateral damage: less debt relief than needed, and more austerity than Greece can bear.

A more likely Grexit scenario is that a programme is agreed and then fails. The Athens government may implement all the measures the creditors demand, but the economy fails to recover and debt targets remain elusive. Mr Tsipras already agreed last week that if this situation arose, he would pile on more austerity. So, unless the economy behaves in future in a very different way from the way it behaved in the past, it will remain trapped in a vicious circle for many years to come. At that point, Mr Tsipras, or his successor, could concede defeat and opt for a negotiated Grexit as the least painful option. Grexit could also be forced on them by the creditors.

My own most likely Grexit scenario is a different one yet again. Donald Tusk, the president of the European Council, hinted at this in his interview with the Financial Times last week when he said that he felt “something revolutionary” in the air. He is on to something. The most probable scenario for me is Grexit through insurrection. Give it another three years, and I would not be surprised to see Mr Tusk and his colleagues in the European Council having to entertain even more drastic action to quell a crisis.

Greece is not quite at the point of insurrection yet — despite eight years of recession. Opinion polls still reflect a majority of the people in favour of keeping the euro. In real life people choose between a small number of political alternatives and settle for the one they think works best for the economy. They voted for Mr Tsipras and his Syriza party in January because the other parties failed to deliver. If Syriza fails to deliver, too, as it surely will, the Greeks will have no democratic choices left.

Can Mr Tsipras still avert disaster? If there is a snap election in the autumn, he might well win it and then revive Mr Varoufakis’ parallel currency idea at some point. But I think the parallel currency moment has gone with the man. My hunch is that Mr Tsipras will run a rabble-rousing political campaign, with a lot of rhetoric against the creditors but then agree to whatever the creditors are demanding, and follow the programme to its dramatic climax.

munchau@eurointelligence.com

Letters in response to this article:

Greece needs a ‘velvet divorce’ from eurozone / From Stefan Auer

Now it’s just a waiting game for Tsipras / From Albion M Urdank

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