Greek politicians seem to be headed toward some kind of consensus that the terms of the bailout agreement need to be renegotiated.
Every indication from the rest of Europe is that there is no chance of a renegotiation. The Greek government only has two cards to play 1) full default 2) leaving the eurozone
If this trajectory is maintained — and I believe it will be — the rest of Europe will have to ask itself if it would rather abandon Greece than renegotiate. Kicking Greece out threaten bank runs and bond market troubles in other periphery nations. Renegotiation puts the entire austerity agenda at risk, which also threatens confidence in the periphery bond market.
My feeling is that the best and most likely course is a renegotiation that makes some small concessions to Greece and allows the fringe political parties to claim victory without altering the broad course of the austerity agenda. But it depends on how deeply hardliners like Tsipras and Schaeuble want to dig in.
If it plays out that way, it’s positive for the euro but the market won’t be overly fooled. It just kicks the can a bit further down the road because ultimately Greece can’t afford its debt load.
