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Q. When is an ultimatum not an ultimatum? (Hint: Greece)

Greek Prime Minister Alexis Tsipras As Deal Talks IntensifyGreek Prime Minister Alexis Tsipras As Deal Talks Intensify
Alexis TsiprasPhotograph by Kostas Tsironis — Bloomberg via Getty Images

Greece’s creditors have reportedly drawn up what is effectively a take-it-or-leave-it proposal to keep the country from defaulting.

But they’re still too timid to call it by its proper name–an ultimatum–for fear of wounding Greek pride and goading the government and people into rejecting it.

Late Monday, German Chancellor Angela Merkel was joined at home by the International Monetary Fund’s managing director, Christine Lagarde, and no fewer than three presidents: Francois Hollande (France), Jean-Claude Juncker (European Commission), and Mario Draghi (European Central Bank).

Between them–according to reports in The Wall Street Journal and Financial Times–they basically agreed to bury their own differences in an attempt to break a three-month deadlock over the fate of Greece’s bailout package. Greece’s government and its banks are fast running out of money, and a complete financial collapse seems, at most, weeks away unless a deal can be reached.

Last night’s meeting is important because divisions between the creditors have been an important part of the deadlock. Bridging them leaves Greek Prime Minister Alexis Tsipras less to hope for by trying to play off one side against the other, a trick he repeated in a blazing op-ed attack published on Monday.

The IMF wants the Eurozone to deliver on a pledge–made in 2012 at the time of Greece’s second bailout–to consider debt relief. By its rules, the IMF can only lend to countries that are fully funded for at least a year, and that can demonstrate medium-term debt sustainability–a tall order when public debt is over 180% of GDP, and the economy has just re-entered recession.

That old sinking feeling: Greece's economy is shrinking again.
That old sinking feeling: Greece’s economy is shrinking again. Source: Markit
Source: Markit

On the other hand, Eurozone governments, who hold 60% of Greece’s debt these days, argue that that would make it impossible for them to keep lending to Greece in a third bailout which most people now accept is inevitable, given the country’s dim prospects for regaining access to capital markets any time soon.

According to the WSJ, the IMF has now “softened its insistence” on debt relief. Neither paper indicated any major concessions by the Eurozone, although the FT reported one Eurozone official as saying that the new proposals foresee letting Greece run a much smaller primary budget surplus (i.e., before debt servicing) of ‘only’ 1% of gross domestic product, rather than 3% as originally demanded.

“The bottom line is that we are not going to meet them halfway,” Jeroen Dijsselbloem, who chairs the ‘Eurogroup’ of Eurozone finance ministers but who wasn’t at the meeting, told RTL Nieuws Tuesday. “The package as a whole must make sense in budgetary terms.”

If, however, the creditors thought that Greece would simply accept the choice as put to them, they were grievously mistaken. Tsipras told reporters Tuesday that he too had submitted a new “realistic plan for Greece to exit the crisis,” inviting further argument over which plan should be the basis of discussions (the creditors have rejected all of Athens’ previous plans this year as lacking detail and credibility).

Even before a text had found its way to Athens, protests at being served an ultimatum were beginning. Nikos Filis, the parliamentary speaker of Tsipras’ Syriza party, was quoted by the WSJ as saying that “it’s obvious that the government cannot co-sign and accept” an ultimatum that breaches Syriza’s electoral mandate, while Labor Minister Panos Skourletis told Skai TV that: “There is no more room fort compromises.”

As such, the brinkmanship looks set to continue for at least a few more days. Greece is due make a payment of €303 million ($330 million) to the IMF on Friday, the first of four payments totalling nearly €1.6 billion this month. Officials have indicated they will miss the first payment and bundle it with later ones unless there is a deal by Friday.