Deal on "haircut" and new measures or elections in February

In the next 24 hours the situation in Greece will be clear. After a long period of negotiations and uncertainty, the people will know if their country will default and go to elections or if they still have a chance. Most importantly, they will learn how much this will cost them.

Information from Maximou Mansion indicates that the the Troika has reached its red line. It insists on reducing salaries in the private sector and is discussing the 13th salary. It requires, however, the elimination of all sectoral agreements. It does not accept talk of residual privatization and calls for privatizations here and now. It also suggests bank recapitalization taking place with preference shares or ordinary non-voting.

This means that the three leaders should take a step back.

- George Papandreou concentrates on the banking issue
- Antonis Samaras and Giorgos Karatzaferis concentrate on the complementary pensions and bonuses.

In order to find middle ground with Lucas Papademos and the Troika they will have to back down, shouldering the corresponding political cost. The leaders, and Greece along with them, are at a crossroads. If they say no, the PM will return the mandate and the country would be led to elections under the threat of, or in default. If they say yes, they endanger their political future on critical votes in the House which will follow.

They, of course, can allow time and authorise the Papademos government to carry out a reshuffle in order to undertake the implementation of the measures, starting with a legislative act.

“We are at a crucial moment in developments”, stated Pantelis Kapsis, the government spokesman. He described the arrhythmias concerning the coalition government over the voting of the Justice Ministry bill as “normal”. In this context, he asked everyone to remain focused on the primary goal, saving the country. “This agreement will only take place after a joint decision by the three leaders”,he clarified.

He confirmed that there will be a meeting of the leaders before the country makes its final decisions.

This raises the issue of what will happen if negotiations fail. The famous “Plan B” of Brussels provides for Greek default within the euro and the issuing of Eurobonds in order to avoid the spread of the crisis.

However, today’s estimates by Fitch Ratings moved on the same wavelength, since the combination of a tight fiscal policy and structural weaknesses existing in many EU countries does not allow for the continuation of the same prescription.

Those more adventurous are already beginning to speak of the need for the ECB to follow the U.S. example and allow a central bank to issue euros.