A Question of Trust By: Gabriel PotterMBA, AIFA® 2015.07.13

Our viewpoints and predictions regarding the Greek bailout and potential exit from the Eurozone were largely confirmed, with one big exception.  When the Greek referendum passed as Alexis Tsipras wanted it to – with a  “No” vote against austerity – what I didn’t see coming is a Greek counter-proposal that included essentially everything from the previously rejected agreements.  Nobody can see into the heads of the negotiators, but that doesn’t stop pundits from guessing.  I’ve spent the past week reading all sort of interpretations about the Machiavellian machinations  of the Greek crisis and potential outcomes. 

First, the face-value theory suggests that Greek leaders really believed that a formal protest – the referendum – gave them a stronger negotiating position by expressing the will of the people.   A competing theory suggests that Tsipras wanted to get out of the Eurozone, but the only way he could do it was to convince the Greeks that the referendum was really about the austerity measures.  Yet another theory suggest that Tsipras’ call for a referendum let the Greeks blow off some steam and have a protest before begrudgingly coming back to the demands of the Troika to remain in the Euro, with the possibility of some debt forgiveness. 

Each of these competing theories – and there are many more – reveal a fundamental truth to the Greek drama:  there is no trust between the negotiating parties.  There must be an ulterior motive which accounts for the bizarre conduct of the negotiating parties.

When the Greeks came back with their counter-proposal last Thursday – which essentially gave the creditors everything they had asked for in a previous proposal – the lack of trust made accepting the deal nearly impossible.  The hardliners were actively advocating temporary (to permanent) exclusion of Greece from the Eurozone, despite getting their way.  The hardliners (Germany, Finland, et al) needed much more convincing and, ultimately, a $50 billion collateral of Greek state assets.  Think about that.  In the space of a few weeks, the Europeans moved past debating the terms of the agreement.  The conversation devolved into one of faith, where the promises put to paper are no longer good enough.  Trust is broken in the Eurozone. 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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