It will not be the debt the most difficult problem along the negotiations between Athens and Brussels, or rather between Athens and Berlin; it will be the exit from the austerity policy. It is true that SYRIZA program talks of a debt haircut, but the impression of many observers is that, as far as the debt is concerned, an agreement is possible, as it has been a couple of years ago.

The repayment of 80 billion of bilateral loans, established in 2010 between the countries of the euro-zone and Greece, has been moved forward between 2020 and 2041, almost always with 2.6 billion annual repayments. As far as the loan of the EFSF ( Europen Fund Stability Facility) is concerned (more than 140 billion), redemptions will take place from 2023 until 2057, 4 billion annually, but with peaks of 10 billion (2032, 2043, 2045, 2054, 2056).

The interest rates have been reduced, so today the average cost of debt is almost to the level of that of Germany, 2.4%. Obviously, given a debt equal to 175% of GDP, the interest burden on GDP is much higher, 4.2%. Certainly interest expenditure of that level has forced the previous government, on the basis of the agreements signed by the Memorandum of Understanding (MoU) to reach a high primary surplus (2.8% in 2014); in fact it is the highest among the European countries, more than the German and Italian ones.

The problem of Tsipras government is similar to that of the Italian and Portuguese governments. If one has to reach and maintain a high primary surplus, it implies that fiscal policy cannot transmit an expansive push to the economy. The hopes for growth are then limited to export (and, in the Greek case, also tourism).

It is on the fiscal policy issue that Tsipras plays the game with Berlin. According to the MoU the primary surplus is expected to increase again, up to 4.5%, thus leading to a complete, or more than complete, balanced budget. In fact the Greek government should go in the opposite direction, cancelling, or at least lowering, the primary surplus. The effect of a fiscal expansion would be that of significantly reducing the debt-to-GDP ratio. Although in Germany the idea that an increase in the deficit could lead to a decrease in the debt ratio may seem paradoxical, it is simple macroeconomic reasoning. If the multiplier of public expenditure is higher than the inverse of the debt ratio, the increase in the denominator (GDP) is higher than the increase of the numerator (debt); ergo the ratio decreases.

Which is the inverse of the debt ratio in the Greek case? 1 over 1.75 = 0.57. So even a unity  multiplier (but according to IMF estimates the expenditure multipliers are well above the unit) leads to a decrease of the debt-GDP. So one point of public expenditure, in Greece, would lead to a decrease of nearly one and a half of the debt.

This is the crucial issue, that for the Communitarian orthodoxy is difficult to accept. The discovery of the magnitude of Greek deficit, early in 2010, was a good opportunity for the European right to flip the ratio of financial crisis and sovereign debt: the mantra was that in the euro-south countries the economy was conducted by cicadas, and this is the reason that led to crisis. So you need to repair public budget by cutting spending and increasing taxes. Since even current account balances were in deficit, you have to increase competitiveness by cutting wages. These conditions have produced, in the three years 2010-2012, a fall in Greek GDP of almost 20% (in 2013 the decrease was “only” 3.8%). It is hard to find a similar catastrophe if not going back to the 1929 Great Depression.

A rollover of maturing debt this year with the IMF (about 9 billion) is certainly possible, while it seems that the maturities of bonds purchased by the ECB as part of the Security Market Program (SMP) in 2010, must be respected. The ECB cannot renew, other ways the Bundesbank would charge ECB of financing sovereign states; the bonds expiring in July and August are almost 7 billion (but the Bank of Greece will get the interests). The Tsipras government says it doesn’t want an additional European funding, precisely 7 billion, before renegotiating the general set of conditions. However in the absence of funding the government is in a critical liquidity condition; it needs financing both to meet bond maturities (there also 1,5 billion in private hands expiring this year) and to finance the program of expenditures, evaluated, in SYRIZA program, around 11 billions.

In the coming weeks we will see a complex game, that recalls game theory, which Yanis Varoufakis, and (perhaps) Alexis Tsipras know. Both players have their strengths and weaknesses. It is easy to argue that the Greek government should show to be strongly determined, otherwise it will happen as with Hollande and Renzi, who have achieved almost nothing. On the other hand, the Greek financial situation is critical, and the government is unable to finance itself on the market; it has also the problem of capital flight from banks, evaluated in 20 billion, and a deficit accounts in Target 2, the interbank payment system of the Eurosystem, which is growing behind 50 billion.

Berlin and Brussels have the problem of the possible domino effect of a break with Athens; but they can not admit that the line of austerity has failed and then accept a sharp 180-degree reversal of fiscal policy. The margins of debt agreement are possible, though not explicit in the form of a haircut; but the real game is played on economic policy.