"The head of Greece's radical left party—throwing down a gauntlet that could increase tensions between Greece and its frustrated European creditors—said he sees little chance Europe will cut off funding to the country but that if it does, Athens will stop paying its debts."
Oh yeah, I'll bet the European creditors are "frustrated." It's frustrating when remorseless bullying no longer works.
I've already talked about how much I like Tsipiras and with his stance here his stock is rising even higher. Of course "running higher" is exactly what the Euro markets are not doing except for the French and Spanish bond yields which aren't supposed to rise.
"A financial collapse in Greece would drag down the rest of the euro zone, said Alexis Tsipras, the 37-year-old head of the Coalition of the Radical Left, known as Syriza, and potentially the country's next prime minister. Instead, he said, Europe must consider a more growth-oriented policy to arrest Greece's spiraling recession and address what he called a growing "humanitarian crisis" facing the country."
See, I've already been through the idea that the Democrats have the better hand this time despite Boehner's pitiful ultimatums. For once the Democrats have a hostage they can shoot-the Bush tax cuts. In Europe they're trying to make it sound like Greece has no cards to play but that's clearly not true. It's possible they have a stronger hand. In a way maybe it's the EU that is being irrational not the Greeks:
"I am unconvinced by the argument that Greek voters are irrational, even if one only considers the economics of the situation they find themselves in. And this argument is strengthened when you consider non-economic factors. Everywhere in Europe you hear ordinary people saying that they feel powerless, that voting changes nothing, that they feel disenfranchised. In Greece, voters may be about to really change things, regaining some control over an agenda which has up till now been dictated by people like Lorenzo Bini Smaghi. I guess that many voters will derive utility from this."
"Knowing all of this, leaders in other European countries should surely be trying to offer Greek voters something that the status quo excludes: hope. Instead, they are offering warnings about dire consequences, and statements to the effect that the rest of us can handle a Greek exit. You do have to ask: who is it that is being irrational here?"
And this desire for hope and a feeling of regaining some control voting for the austerity candidates cannot bring Greece. I think on balance this might hurt the EU more than the Greeks-no question there will be some major pain at first but maybe successful devaluation will enable them to put some of the pieces back together. If they leave though the possibility of contagion is very strong. On some level some people in the EU and IMF understand this. In this sense it's not impossible that the EU could blink and ease up on the austerity.
How likely is it-I wouldn't say it's super likely but this is a function and how rational understanding the EU has of it's true position. If it really is ignoring the market pain and thinking it will be a cinch with Greece gone then of course the EU won't blink.
But there's more than the economic contagion. Greece-but also Hollande in France and other defeats for the austerity candidates-could also create a political contagion where other Europeans start to take some control back. What's clear is that there's unhappiness with austerity even in Germany based on some recent elections there that went very poorly for Merkel. Again, listen to Mr. Tsipras and tell me you don't love this guy even a little bit:
"Our first choice is to convince our European partners that, in their own interest, financing must not be stopped," Mr. Tsipras said in an interview with The Wall Street Journal. He said Greece doesn't intend to take any unilateral action, "but if they proceed with unilateral action on their side, in other words they cut off our funding, then we will be forced to stop paying our creditors, to go to a suspension in payments to our creditors."