Saturday, July 11, 2015

An Ingenious Blunder?

As I have written elsewhere, the obvious strategy for Greece in its debt negotiations was to try to split the creditors. This the Greek government failed to do up to the moment of the referendum. The subsequent backtracking from the No position and apparent unconditional surrender made the decision to hold the referendum at all appear to be a monumental blunder. Or was it monumental duplicity? There are some who say that the only reason Tsipras called the referendum was because he expected the Yes to carry the day:
The Greek government and particularly the circle around Alexis, were worn down by this process. They saw that the other side does, in fact, have the power to destroy the Greek economy and the Greek society — which it is doing — in a very brutal, very sadistic way, because the burden falls particularly heavily on pensions. They were in some respects expecting that the yes would prevail, and even to some degree thinking that that was the best way to get out of this. The voters would speak and they would acquiesce.
But what has happened since the referendum is interesting. The creditors have at last been split. Two cleavages are of the utmost importance: between Germany and France and between Schäuble and Merkel.

France has emerged in recent days as Greece's strongest and perhaps only active ally in the crisis. A technical team dispatched from Paris helped draft the Syriza surrender document, which appears to have satisfied the immediate demands of the Eurogroup if nothing else. François Hollande has at last found a voice of sorts. If nothing else, he has made it clear that he would regard a Grexit as a genuine disaster. This puts him at odds with his German Social Democratic counterpart Sigmar Gabriel, leader of the SPD, who wasted no time in saying that the Greek No vote meant that there was no choice but Grexit.

With this declaration, Gabriel aligned himself with Schäuble against Merkel, who is caught in a dilemma of her own making. She does not want Grexit, but her uncompromising position on Greece until now has convinced many in the CDU-CSU that no matter what the Greeks say, they cannot be trusted. Hence even abject capitulation is not enough. If Merkel tries to save the euro by coming to an agreement, she makes herself vulnerable to a challenge from Schäuble within her party and from Gabriel without, but within her Grand Coalition.

Meanwhile, former Greek finance minister Varoufakis, who fled Athens to his island home in order to avoid voting on whether to accept the surrender to the Troika and thus became one of 17 Syriza deputies to abandon Tsipras, claims,  rather bizarrely, that Schäuble's ultimate goal is to intimidate France:
Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.
Of course France and Germany are not the only players. There are other countries, some more recalcitrant than Germany. And there is the IMF, which has suddenly become more vocal about the need for debt reduction as part of an overall settlement.

Can one say that Tsipras's endgame has been an ingenious blunder? It has achieved two things. First, it has moved the debate away from the terrain of economics and into the realm of politics. This of course complicates the picture enormously and introduces many imponderables. But there was always something absurd about having the fate of the European project hinge on a debate about whether hotels on Greek islands should pay a VAT of 17% or 23%. At least now there is scope for removing the green eyeshades and beginning to contemplate the real stakes, even if it also means contemplating the abyss.

Second, it has put Merkel in a position where she can no longer temporize. She always prefers delay to decision, and she has been encouraged in her passivity by Hollande's equal and opposite aversion to choice. But Hollande now seems to have been forced at last to stand firm against Grexit, and Tsipras's blunder may have made it more expedient for Merkel to seek an alliance with Hollande in order to wrongfoot both Gabriel and Schäuble simultaneously. We do not yet know which way she will go, but her place in history will depend on her choice.


bernard said...

Well, if Germany blocks the French-led deal, I will start thinking that Varoufakis is onto something, not bizarrely at all. Schäuble does sound arrogant and we all know that when Germans become arrogant, they become infinitely arrogant until stopped in their tracks. Time to redeploy those short-range missiles.

bernard said...

Only joking of course...On reflection, let's keep the UK inside just in case.

Anonymous said...

No Bernard you were right stopping arrogant Germans has been devastatingly costly twice already in the past century. What we are seeing is war by financial proxy and the Schäuble must be stopped for everyone's safety. He is the one the Greeks out to be pinning caricature moustaches on not Frau M.

Anonymous said...

'ought' not 'out'

bert said...

Can I recommend this? :

It's full of interesting history, much of which I for one was completely ignorant of. More importantly, it offers a different framework for looking at the crisis. There's been far too much of the national blame game recently. It's a European habit we should be careful of falling back into.

Mitch Guthman said...

I don't see how this “split” among the creditors somehow represents a positive development for Greece. Yes, the supposedly more merciful Merkel-Hollande faction is possibly ready to accept the Greece’s abject surrender on extremely punitive terms that will gratuitously inflict generations terrible suffering on the Greek people because Tsipras and Varoufakis are insufferable and disrespectful. And, yes, this is actually more merciful than the more hawkish Schäuble faction that wants to inflict the most horrific suffering imaginable on an already prostrate Greece so that everyone will understand who runs Europe. But the end result is still surrender on infinitely worse terms than before Syriza was elected and a nightmarish future for Greece as a German debt colony.

Speaking for myself only, I’m not sure that being told that one will merely be hanged instead of being guillotined and having one’s head displayed on a pike would really be a cause for celebration. The only real difference seems to be how the corpse will be treated. Either way, Greece ends up dead. To borrow from Georges Brassens: Hang here, hang there. What's the difference if you end up hanged anyway?

I don't really understand why Tsipras thought there would ever be a better deal. Greece’s only real hope to extract concessions from Germany was Grexit combined with the the threat of a total default. And so, to echo Paul Krugman's blog post from this morning, if it's true that Tsipras began his campaign for better terms after having decided to unilaterally renounce his only leverage against Germany then, clearly, he is the biggest, most colossal fool that ever lived and every bit of the suffering endured by his people since Syriza came to power was completely unnecessarily and pointless.

Alexandra Marshall said...

This could not be going worse for Greece. We are watching a really horrible history unfold.

Mitch Guthman said...

This is interesting:

"Germany’s finance minister Wolfgang Schäuble is the chairman of the board of supervisory directors of the Institution for Growth, an institution that could take control of “valuable Greek assets”, worth €50 billion.

"Among one of the conditions for a bailout is a proposal for “valuable Greek assets” – as yet unidentified – to be transferred “to an existing external and independent fund like the Institution for Growth in Luxembourg to be privatized over time and decrease debt. Such fund would be managed by the Greek authorities under the supervision of the relevant European institutions”.
The institution is a wholly owned subsidiary of German development bank Kreditanstalt für Wiederaufbau (KfW)."

Maybe not as portable as Rembrandts, impressionists or gold but no doubt quite tasty, and I'm sure that Schäuble and his German pals will all get to wet their beaks a little. Really, the Nazis were pikers compared with this lot.

bert said...

I'm serious, Mitch. Before my last post I'd spent an hour or so looking through other comment sections. Only myself to blame perhaps, but I ended up worried like I've not been before. Probably also an effect of the amount of centenary coverage of WW1 we've had in the old continent. You'll have had far less of it in the States, I'm sure. Nationalism is intoxicating stuff, and plenty of people have light heads.