WASHINGTON — A thesaurus, a thesaurus, Europe’s currency for a thesaurus.

For the second time in a week, talks between Greece and Europe have broken down over the semantics of whether a short-term bailout would be an “extension of the current programme as an intermediate step” or an “extension of the current loan agreement, which could take the form of a four-month intermediate programme.” The first is what Europe wanted, and the second is what Greece would have accepted. Now, it might seem silly that a disagreement over the order of the words “intermediate” and “programme” could force Greece out of the euro – aren’t they just a thesaurus away from a compromise? – but this is a real political problem. Both sides want a deal, but neither wants the other to be able to say they got the better of it. So the rhetoric hardens and the game of chicken is still on.

This impasse is pretty simple. Greece’s new government has pledged to renegotiate its debt and stop any more austerity – these are not the same thing – but Europe doesn’t want to look like it was blackmailed into doing so. That’s because Europe is worried if it doesn’t extract a pound of reforms from Greece, then anti-austerity parties in Italy and Portugal and especially Spain would also think that they could get what they want just by threatening to blow the euro up.

The problem is the one thing Greece won’t compromise on is the one thing Europe won’t admit – that the bailout has failed, and needs to be scrapped.


Elections, it turns out, really do have consequences, and so do words. The leftist party Syriza, you see, just won power on its promise to end Greece’s old austerity program, and negotiate a new deal with Europe that would give it a chance to actually grow. It’s not going to give up on that after just a month in office. Indeed, Syriza has already turned down the bailout money Greece was supposed to get under the existing agreement because it says that agreement no longer exists. That’s why there’s such a rush to get a deal done soon. Without one Greece could run out of cash in the next month; definitely in the next six.

But the crazy thing is that a compromise really shouldn’t be that hard. Greece has so much debt, analyst Dan Davies explains, that the 317 billion euros ($1 equals .88 euros) it owes might as well be a million bajillion euros – it’s about as meaningful and likely to be paid back. Everybody knows this. The only question is when they can admit it by cutting the interest rates on Greece’s bonds even closer to zero and extending the maturities even closer to forever. Well, now seems like a good enough time. Syriza, in other words, probably won’t get Europe to exchange its bonds for economic growth-linked ones, like it wants, but it could still get debt relief. (And it would get even more if it makes its bonds eligible for central bank purchases by paying the ECB back).

Then there’s the austerity. Greece is already running a primary surplus – that is, before interest payments – of around 1.5 percent of gross domestic product, but that’s supposed to go up to 4.5 percent of gross domestic product the next two years. That’s nuts. Think about it like this. How much does one euro of spending add to Greece’s deficit? Well, that depends on how much it adds to Greece’s gross domestic product. Usually that’s nothing or close enough to it. The central bank, after all, has its inflation target, which it very much wants to hit, so it would either raise rates to undo any spending it didn’t want or wouldn’t cut them like it otherwise would have. But interest rates are zero and inflation is far below target right now, all a way of saying that the central bank wouldn’t negate anything. More spending would mean more GDP, which would mean more tax revenues – so, when you add it all up, one euro of spending would only add about half a euro to the deficit.


In the last seven years, Greece has gone through a great depression as bad as anything you’ll find in the history books. Indeed, its economy has shrunk by 25 percent, about as much as the U.S. did during the 1930s. Some of this was deserved. Most was not. Greece really did borrow too much and lie about how much it was borrowing – although it got some help with that from Goldman Sachs – but it wasn’t able to do all this without some equally irresponsible lending. It’s been the Greek people who have suffered, though.

Now, through it all, Europe has told Greece to cut, cut, cut its way to prosperity, which was a bit of false advertising, but still needed when it had a big deficit.

In the end, Europe can’t make the compromise it needs to because it doesn’t want to admit that a rule-breaker like Greece has a point that the rules haven’t exactly worked.