In 2010, when the Greek debt crisis first came to a head, the politicians searched frantically for a scapegoat. “Private sector involvement”, or PSI as it became known, was the eventual means by which Greek debt was reduced by restructuring bonds in the hands of the private sector. Publicly held debt in the hands of European governments and official institutions was exempt from the restructuring. European politicians found it easy to extinguish the claims of the private sector since it did not affect their own balance sheets. A clear triumph for the politicians over the bankers.
2015 is different. The great majority of Greek debt is now held by the public sector, so that an easy scapegoat no longer exists. Whereas in 2010 politicians were facing off against bankers, in 2015 we have politicians facing off against politicians. This makes the negotiation much easier, since politicians share the same objectives. Both sides know that electoral backlash needs to be contained – Greek Socialists must be seen to be valiantly fighting the establishment while the creditor nations must be seen to be resisting wealth transfers. Electoral attention spans are short, so both sides know that delay is the key to defusing the issue. Money, in fact, doesn’t come into it.
The current crisis will end with a whimper, not a bang. There will be fiery speeches, emergency meetings, 5AM “landmark” agreements to extend deadlines and eventually a long delay, after which the electorate moves on. No debt reduction for the European creditors and a pyrrhic victory for the Socialists.
And that’s it!