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.