The Eurogroup meeting before the weekend was particularly acrimonious. Greek Finance Minister Varoufakis was isolated and demonized.  After intensifying their criticism of Varoufakis in the closed meeting, according to reporters, several carried their battle to the media. 

The Greek government responded.  Prime Minister Tsipras has announced a shuffling of his negotiating team, which includes a demotion of Varoufakis.  While the controversial finance minister retains his post, a new negotiating team. The deputy Foreign Minister, Tsakalotos, a soft-spoken Oxford-educated economist will coordinate the group of negotiators going forward. He is well-liked by the official creditors, according to press reports. 

There have been two other personnel changes.  Varoufakis's general secretary, Theocharakis, who has been leading the technical-level talks, has been reassigned.  He will now focus on devising a growth strategy upon which a new deal after the current one expires in June. Separately, a close ally of deputy Prime Minister Dragasakis, will take over responsibility for talks with the official creditors. 

Varoufakis has not been particularly cooperative the EU, ECB and IMF officials gathering technical data on Greek finances as the Greek government has been critical not of the name Troika but of its substance.  Recall that a preliminary ruling by the European Court of Justice also noted that the ECB ought not to be in the Troika as it represents a conflict of interest.  In any event, the new team is expected to be more cooperative. 

Ironically, just as the Tsipras government has repeatedly tried to circumvent the Eurogroup of finance minister and reached out to the heads of state (and was criticized for doing do), the Eurogroup has been trying to bypass the Greek finance minister. Varoufakis' style and the substance of his arguments rankled fellow Eurogroup ministers. His partial demotion, which formalizes a process that seemed to have been in the works in a gradual way in recent weeks, may give the talks a fresh start. Varoufakis was not a member of Syriza before the election, and his demotion, may lead to his resignation, even if not immediately.

More important than personalities is substance. The key issue is whether the Tsipras government's position is going to shift due to these personnel changes. The sticking points is labor market reforms and pension cuts. The signal today suggests Tsipras is now willing to compromise on minimum wage, which it previously sought to restore to previous levels. The Greek government has also relented in its initial opposition to privatization. 

In Greece, pensions as a percentage of GDP, is the highest within the monetary union.  However, this is a bit misleading  though widely cited.  When adjusted for the age of the population, the pension payouts are a little below the EMU average.  

Meanwhile, the Syriza-led government has begun trying the patience of Greek voters.  One poll released over the weekend showed a small majority (52%) expressed dissatisfaction with the government. A little over a third (39%) were satisfied.  A separate poll found nearly three-quarters (71.9%) think that Greece would benefit from striking a deal with the creditors, compared with a quarter (23.2%) favoring a break. This meshes well with the other result showing that an overwhelming majority (72.9%) want to stay in the monetary union and only a fifth (20.3%) want the drachma back.   

Despite various officials still saying that Greece has to decide whether to stay within the EMU, public opinion seems stronger in Greece than most other countries. While there are indeed rules that must be adhered to, the rules have often been fudged, and countries given exemptions or granted forbearance. Moreover, given the unprecedented nature of the problems, there is not a standard operating procedure. The rule book is incomplete. 

From the official creditors' point of view, Plan A has always been about completing the existing aid program. It is important to recognize, however, that the problems began under the previous government led by the New Democracy's Samaras. It was under that government that the official creditors cut off payment tranches under the existing program. In the first three months of office, the Tsipras government has not succeeded to restarting the aid.   

A Plan B that has emerged in the vacuum that opened given the obstacles to Plan A. It entails a restructuring of Greece's debt in official hands, something that had been suggested by Eurogroup officials when Greece achieved a primary budget surplus, which it did last year. Still, the official creditors are loath to relent. After many non-Greek banks pared their Greek bond holdings by selling them to the ECB under the previous SMP program, Greece restructured the bulk of the remaining debt that private sector investors held. The PSI occurred with Greece, of course, remaining within the monetary union. 

There are three basic demand for Greek funds, outside of the wages and pensions of civil servants. There are maturing T-bills, owned primarily by Greek banks. There has been no significant problem refinancing these.  Although Greek banks cannot use ELA funds to buy more bills, they are still rolling over maturing issues. There are funds due to the ECB, but these are not coming due until July, and it is not clear that the government has sufficient funds to last until July. So, while the tab is large (~3.5 bln euros), it is not the most pressing issue. That leaves the IMF.  

Greece has a payment due in early and mid-May which together total almost one billion euros. There is a 30-day grace period that Greek officials may choose to explore. The IMF does has an arrears process that would likely be launched. Among the measures maybe a ban on any further disbursement until the obligation is met. However, if Greece does delay an IMF payment, it could easily spook Greece's other creditors. 

Personalities and style are indeed important factors, and the demotion of Varoufakis could be helpful in this regard. However, the real challenges are substantive in nature. The official creditors grew frustrated with the previous government, and their decision to it off from assistance may have helped pave the way for Syriza's electoral victory. While we have been critical of Greece for playing poorly with a weak hand, the official creditors have played poorly with a strong hand. The prospects of a re-start opportunity is reversing the earlier decline in Greek bonds and spurring a rally throughout the periphery. The euro has also retraced part of its earlier losses. 

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​Read more by Marc on his site Marc to Market.