I think we all agree, Greece needs a third program, one way or the other they can´t get out of this mess without help.
I´ll try to analyze this from the German perspective:
- the financing for a third program has to come from the ESM. As planned for a long time, EFSF ran out on the 30th June, and is now integrated into the ESM.
- While the ESM has way more leeway how its programs are structured, the hurdles to get such a program are much higher than with the EFSF. To negotiate an EFSF program, Merkel/Schäuble needed a mandate from the German parlament. They got it with 29 no votes from their own party, but about 100 members of their own party gave a dissenting statement along the lines of "this will be the last time I say yes".
- The hurdles to get an ESM program are:
--- the ESM may only offer a program to prevent severe market turmoil
---> when you see how cool the markets reacted this last week, there will be many German politicians arguing that this precondition has not been met
--- Merkel/Schäuble need a new mandate from German parlament to be able to start negotiations
---> this will probably not be that much of a problem (depending on how the vote in Greece goes this Sunday)
--- after successful negotiations, Merkel/Schäuble need to present the result of the negotiations again to the German parlament, and have a vote on it
The current speculation goes like this:
a) Greece votes "Yes"
- that would mean an immediate end for Tsipras/Varoufakis
- president of Greek National Bank would become prime minister of a government of national unity, immediately starting the process to renew negotiations under ESM rules, and preparing new elections for later in the year
- ECB would keep on giving ELA credits to keep Greece afloat until negotiations are settled
b) Greece votes "No"
- now it gets messy: Merkel would ask her party to have a "test vote" on giving her a negotiating mandate. The result in this case is far from sure. But as a politician I expect her not to take a weak mandate. In this case she would probably simply wait until Greece runs fully out of money and is thus forces into a new currency, then giving Humanitarian Aid.
- if she gets a strong mandate for negotiations, she would immediately return to negotiations. But: she would have way less leeway for compromise.
The Greek delegation would see itself strengthened in its position and walk way back on its concessions. The German delegation would know that their own party sees the Greek delegation as hostile and so would be less willing to compromise. So in the end the positions would be way further apart than ever before.
