Einhorn Says Europe Letting Greece Collapse to Stop Populism

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David Einhorn, founder of Greenlight Capital, said Europe’s leaders are prepared to let Greece fail to discourage other countries from electing populists.

“Europe is unwilling to allow Syriza a face-saving compromise, even if that means Greece collapses and the rest of Europe suffers,” Einhorn wrote in a letter to investors on Monday obtained by Bloomberg.

Greek Prime Minister Alexis Tsipras, leader of the Syriza party, has returned to Athens after negotiating with European leaders over the weekend to get a bailout for the country after initially rejecting calls for more austerity. Creditors’ demands include an overhaul of sales levies, a broadening of the tax base and a clampdown on pension costs, measures that are opposed by factions within his government.

“Syriza has capitulated by proposing a deal which leaves Greece with even more austerity than when negotiations began and no actual debt forgiveness,” Einhorn wrote. “This might not be enough, as the grand goal of the European negotiators appears to be to discourage other countries from electing populists.”

Greenlight continues to hold a small position in Greek bank stocks and warrants, though losses and remaining downside exposure aren’t significant, Einhorn wrote.

Einhorn said that last year it appeared Greece had turned the corner after years of suffering through austerity before making a terrible error.

Monster Lynch

“Much like the Seahawks’ ill-fated decision to pass the ball at the end of Superbowl XLIX, instead of giving it to monster running back Marshawn Lynch, Greece snatched defeat from the jaws of victory by electing the populist anti-austerity, pro-debt-writedown, Syriza coalition,” he wrote, referring to the Seattle’s last-minute loss in the National Football League Championship in February.

The newly-elected government then failed to negotiate properly with Europe’s leaders.

“Syriza didn’t understand what the game is,” Einhorn wrote. Referring to former finance minister Yanis Varoufakis’s professed goal of using “game theory” to win at the negotiating table, Einhorn wrote, “He must not be familiar with the Tyler Durden school of negotiation: the first rule of using game theory is you do not talk about using game theory.”

Einhorn wrote in the letter that it was a challenging quarter to find new investments.

The firm bought shares in Bank of New York Mellon Corp., anticipating it will benefit from an increase in interest rates. It also took a small position in Applied Materials Inc., a semiconductor equipment manufacturer that canceled a merger with Tokyo Electron Ltd. because of anti-trust concerns.

Greenlight exited positions in Altice SA, Conn’s Inc., EMC Corp. and Marvell Technology Group Ltd.

The firm’s main fund has lost 3.3 percent in the first half of 2015, according to the letter. The average stock-focused hedge fund gained 4.1 percent during the period, according to data provider Hedge Fund Research Inc.

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