“Be kind, for everyone you meet is fighting a hard battle”
The last blog “Greece is the word” looked at the negotiations between the Greek government and the EU from the perspective of applied Game Theory.
The thought at that time was the Europeans would ultimately blink, if they believed the alternative to a less than ideal resolution was Greece leaving the Euro and potentially becoming a Russian ally.
The hard deadline to avoid a default was thought to be last Friday and most experts therefore, with knowing smiles, waited for the usual 11th hour accommodation to be announced.
Instead Prime Minister Tsipras went on Greek TV, denounced the European offer as a national insult and called a referendum on what amounts to Greece’s continued participation in the Union.
Why and What?
The first interesting question is why he took the nuclear option of a referendum, an unusual move for a career politician; the wrong answer usually means their political demise?
If the Greek people vote to accept the bailout offer (stay in Europe) Syriza as a ruling party are probably finished. The European elite are so aggravated with their handling of the negotiations and their coalition is weighted strongly against continuing with the status quo, it’s unlikely to hold together beyond a yes.
Of course if the vote is No then that’s a different thing entirely and Syriza remains firmly in power, but no one knows what happens next. What is certain however is the country is in economic meltdown.
The most generous reading of his motive is that he believes he must fight to achieve the most favourable outcome (even at his own expense); that’s the platform on which he was elected and this is the logical last step.
The consensus currently however is that the electorate wants to stay in the Euro and the likely vote will be Yes.
Why did Europe play hardball?
The last blog assumed that the threat to geopolitical stability was great enough to make Europe do whatever it took to prevent Greece departing.
It now appears that Germany as the de facto leader has taken the view that the zone being held to ransom by any individual member is unacceptable and won’t be tolerated. This is not a view without merit; as has been highlighted before there are a number of countries enduring tough domestic economies and once one is given a get out of jail free card, what’s to stop the others demanding theirs?
Is it game over?
There seems to be two different elements to the Greek negotiations.
Greece is plainly closer to a South American country in terms of its high levels of cronyism, corruption, the power of the political elite, poor tax collection etc, than a Northern European state.
What Europe (Germany) wants is for Greece to start running itself as a proper country with discipline and structure and that’s fair enough, it should.
The second element however is the need for their current levels of debt to be restructured. It is too high, too costly and as levels currently stand will be a yoke around the neck for generations. This is plainly true and why default is an obvious way out.
In fact there are eminent economists around the world who have pointed this out for years.
Politics and good sense.
If it were possible to be pragmatic without political consequence the obvious solution to Greece would be for it to be agreed:
- Proper root and branch reforms are enacted with diligence and consistency to create a viable self-sustaining economy
- The debts are restructured by the EU to greatly reduce the hardship and costs
This won’t happen though because:
- The Greeks won’t properly reform (too much powerful vested interest)
- The voters in the rest of Europe will react with fury against any politician allowing them off the hook (Frau Merkel knows she won’t escape the wrath of her electorate)
So it will likely remain a messy fudge, cans will be kicked down various roads and the ultimate day of reckoning will be put off until …… The day it can’t be, whenever that is.
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