With the negotiations with Greece breaking down and re-starting on a daily basis, with deadlines being missed and new deadlines being set, no one really has an idea if Greece will end up leaving the eurozone, including the people at the table. I don’t particularly want to speculate on the odds, but there are a few points that are worth establishing on the situation:

– Greece, even after 6 years of recession, is still a wealthy country by any measure. 

Greece’s GDP per capita (PPP) at ~$25,000 still puts the country firmly in the rich bracket – China is at $11,000 for example. The minimum wage in Greece is €683 per month (before Syriza’s proposed hike to €750), which is at least twice as much as in any of the Eastern European EU member states that joined in 2004 (except Slovenia). When people make statements that “Greece has nothing left to lose” these numbers are worth keeping in mind.

– Crashing out of the eurozone would be disastrous for the Greeks.

Grexit is generally assumed to involve the government defaulting on a payment to the Troika, which then prompts a bank run leading to the Greek banks quite literally running out of euros, which then culminates in bank deposits being frozen and the country introducing a new national currency. People’s life savings would be lost [1] (except for the hard cash stowed away under matresses) and salaries would be converted into drachmas at unfavorable exchange rates. The price of imported goods (ranging from oil to pharmaceuticals but also things like condoms [2]) would skyrocket provided they remained available on the shelves at all. Keeping in mind that some 70% of Greeks do not want to leave the eurozone in the first place, there is a very real chance that their anger would wash away not only the Syriza government but also democratic society.

– Looking at the numbers, Greece’s debt is not obviously unsustainable.

Greece’s debt to GDP stands at 170% which is a lot. But 80% of the debt is owed to the Troika and it is long-dated with very low interest rates, so debt servicing costs just 4% of GDP, which is less than the interest burden in Ireland, Portugal and Italy and is roughly on par with the US. The Troika have agreed to extending the loans for basically forever as long as Greece puts its government budget in order, so while a lot of people (including the finance minister Varoufakis) have said that a Greek default is inevitable, this really does not seem to be the case.

– Grexit is unlikely to trigger contagion.

Part of the reason why the EU was willing to bail out Greece in 2012 was that there were fears of contagion: i.e. that Greece would be just the first domino to fall and a Greek default would be quickly followed by Portugal, Spain and maybe even Italy. People were also wondering if the French and German banks that have had exposures to Greece would require bailouts themselves.

The world is very different today, which is best illustrated with this chart. The borrowing costs of the eurone periphery have remained remarkably stable despite Greek government bond yields going through the roof. Portugal, widely seen as the second-most vulnerable eurozone member, borrows money for 10 years paying record low interest rates of around 3%.

If there is ever a good time from the EU’s perspective for the showdown with Greece, that is probably today. I don’t think the EU decisionmakers generally want Greece to leave, but I also feel that there is a lot of frustration building up over Greece’s brinkmanship and plenty of hurt feelings in Germany about waterboarding metaphors and mentions of Nazis and war reparations. [3]

There was a lot of talk about game theory as apparently Varoufakis is an expert game theorist and people seem to consider this a game of chicken with the Troika and the Greek government racing towards the brick wall and seeing who blinks first. But these 4 points above tell me that the balance of power is squarely with the EU. This is not so much a game of chicken… more like Greece banging its own head against the wall.

1. Why anyone would be willing to keep deposits with a Greek bank at this stage is beyond me but there still is €145bn in bank deposits in Greece. I recognize that there is some romantic appeal to the notion of erasing all bank accounts and starting anew in marxist circles but you can be assured that the Greek fat cats have moved their millions to safety a long time ago and the failure of the banks would put the burden mainly on ordinary people. The €145bn works out to about €13,000 per citizen.

2. There is this story of a pack of condoms in Venezula selling for $755 amid massive shortages of basic goods including chicken, sugar and medicines. Everyone seems to assume that this can only happen in Latin America, but Greece does have a shot at becoming Venezuela-on-the-Mediterranean (without the oil).

3. See this surreal interview with Varoufakis in the Spiegel. It is not even really an interview. The Spiegel is feeling butthurt over Greece’s ungratefulness for their rescue package and just goes after Varoufakis for his questionable choice of words.