Tag: Troika

So, the Greeks have an understanding for an extension of the loan agreement.  On Monday they have to present the “reforms” they will be undertaking in exchange for it.

I don’t know what those reforms will be, but I know that the agreement still gives the Troika (now called “institutions”) veto power over Greek policy.  The key text in the mealy-mouthed statement is this one:

The Greek authorities commit to refrain from any rollback of measures and unilateral changes to the policies and structural reforms that would negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.

The Greeks also promised to pay back everything.

Yeah, Tsipras may be attempting to portray this as a victory, but it’s not.

The bottom line here is that Syriza weren’t really willing to default or Grexit.  One can note that they campaigned on ending austerity, but staying in the Euro.

That was always problematic: yes, that’s what many Greeks want, so it was a political winner, but if they were serious (and it appears they were) it left them without the ability to actually negotiate a better deal.

Much has been made of the fact that Greek Finance Minister Varoufkis is an academic specialist in game theory.  In the the early days he seemed serious about being willing to default.  It appears he wasn’t, it was a bluff.

I’m not an expert on game theory, but I do know something about it, and about negotiation and I’ll tell you this, for threats to work they must be credible, and to be credible you must be willing to actually go through with them.  Faking is never as good as sincerity.  Having campaigned on “have your cake and eat it too”, Syriza was in a bad position to negotiate with Europe.

I had hoped they were negotiating to show the Greeks that no good deal was possible, then would be willing to say to Greeks “only default and Grexit is viable.”  So far, it appears not.

It’s worth noting that reports are that Southern politicians in places like Portugal, Spain and Italy were pushing for no debt forgiveness.  For their own political futures, they need to be able to say “there was no alternative”.  But, of course, debt forgiveness would be good for all of those countries, meaning politicians pushing against it for Greece (setting a precedent allowing it for them) are acting  against the best interests of their own countries.  There is a word for such people, and it starts with “T”.

The Greek Communist party refused to join with Syriza in a coalition government because they expected this to happen, they have been proved correct.  If Syriza does not get a very good deal, or spend the next few months making the case to Greeks for default; in other words, if they don’t turn this around, then they will have their one term and the Greeks will turn to someone else.  Golden Dawn, the fascist party, came in third, but Syriza voters, being left-wing, might prefer the Communist party.  We will see.  Syriza, after all, is not very left wing at all.

It should be noted that we don’t know what threats were made behind closed doors. My guess is that they were very harsh: Greece cannot feed itself, it cannot fuel itself, it has very little to offer in exchange for the foreign currency it requires to buy what it needs.  A default and a Grexit where the Troika and other European countries were not trying to punish it could be managed.  But one where they did seek to punish it would be difficult.  Syriza may not have properly gamed out how to survive in that scenario, and may have been surprised by how punitive the Troika intended to be in the case of default and Grexit.

If so, that is political incompetence (and game theory incompetence).  One should always know what one’s best alternative to a negotiated settlement is.

I’ve written in the past how Greece could handle such a scenario.  (Here and here.)  It’s not an insoluble problem, but it does require being willing to backhand Europe as hard as they have backhanded Greece and then to get even nastier.  Greece has a lot to offer Russia, for example, and Russia can take care of Greece’s fuel needs easily in exchange for Greek bases and so on, which essentially cost Greece nothing.

The key here is psychological. Greeks need to admit that their fellow Europeans do not care how badly they suffer; need to acknowledge that they are not seen as Europeans by their fellow Europeans, and need to look East and South for their survival and future prosperity.

Until Greeks get through their heads, and hearts, that the other European countries are not their friends, they will continue to suffer.  Until they are willing to take the losses that Grexit and default will impose, things will continue to get worse.  (Being genuinely willing to take those losses is also the only way they might be avoided.)

I note also that sheer idiotic incompetence of Syriza in not putting in place currency controls to prevent capital flight during the negotiation period.  This is virtually an own-goal it is so stupid, and should bring into question just how smart Varoufkis is (or Tsipras, if he over-ruled Varoufkis.)

I wish the Greeks the best. But as with all those who have been horribly damaged by neo-liberalism and austerity, they need to get through their heads that those in charge of the policy have no fellow feeling for them; that people like Merkel, Shauble and the Germans who support them are enemies, not friends, let alone family members in some big European family which cares about all Europeans.

This is economic war, with the casualties that implies.  The Germans and the ECB are treating it as such; the collaborators in Italy, Portugal and Spain are treating it as such. Until ordinary people, and the representatives they put their faith in start treating it as such, they will continue to lose.

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