Greek crisis: Tsipras' mistake in negotiations with the Troika

Georg Diaz in a thought-provoking column, Glossar zur Krise: Der Wandel in den Worten Spiegel Online 24.07.2015, talks about how the euro "crisis" has morphed into a permanent condition, a kind of state of emergency as normalcy.

So there will continue to be new chapters of the Greek crisis. Here I want to comment on what I understand to be the fault of Alexis Tsipras' government in the recent negotiations.

My perspective is very different from the disputes within his Syriza Party. One of Tsipras' responses to his internal Syriza critics is provided by The Greek Analyst, Tsipras’s nonpaper slamming SYRIZA dissenters 07/21/2015.

Tsipras made a very practical call taking into account the risks and opportunities within the very narrow range of options that German Chancellor Angela Merkel had successfully established as the dominant leader in the EU. Syriza had a clear policy of solving their debt crisis within the eurozone. It was the program on which they were elected. It was established in internal discussions and disputes within Syriza. It was a clear distinction from the explicit goal of leaving the eurozone and establishing a separate currency, which everyone seems to assume would be called the drachma, like the last separate Greek currency.

That goal was advocated by the Communist Party and the far-right Golden Dawn, as well as by some members of Syriza. But that approach was rejected by Syriza. Part of Syriza's hope, which presumably persists, is that hopefully sooner than later, they will gain effective allies in other eurozone countries. Upcoming Portuguese and Spanish elections could provide some of that support. In fact, Merkel's hardline opposition to any departure from the draconian austerity program in Greece is due to her determination to scare Portuguese and Spanish voters from elected anti-austerity governments.

How realistic Syriza's hope in that regard is, is another question. Recent public grumbling by the social-democratic governments of France and Italy have provided some encouragement on that front. On the other hand, France's President François Hollande was elected in 2012 promising to oppose Merkel's austerity program. Once elected, he hardly made any pretence of resistance to it. Maybe one of these days, he will actually get around to it.

Prime Minister Matteo Renzi of the Democratic Party in Italy has even more rational reasons than the government of France to oppose austerity measures. But since taken office in early 2014, he has been singing from the neoliberal hymnbook pretty faithfully. And the language of faith is appropriate here. Austericide economics is very much a faith-based devotion, not evidence-based economics. Susanna Böhme-Kuby in Bulldozer Renzi Blätter für deutsche und internationale Politik 07/2015 describes his demonstrated commitment to deflationary, neoliberal policies.

The one big miscalculation that I can see in the Tsipras government's approach to the negotiations is that, given the enormous determination by Merkel and her Finance Minister Wolfgang Schäuble to crush Greece's political resistance to their austerity program was that to attain meaningful concessions within the eurozone, he had to be prepared to actually exit the eurozone. And that Tsipras wasn't willing to do.

Wolfgang Münchau describes this correctly, if in a way somewhat less sympathetic to Tsipras' dilemma than I would be, in Grexit remains the likely outcome of this sorry process Financial Times 07/19/2015

Alexis Tsipras should never have hired Yanis Varoufakis as his finance minister. Or he should have listened to him, and kept him on. But instead the Greek prime minister chose the worst of all options. He followed Mr Varoufakis’ advice of rejecting the offer of the creditors - until last week. But having done this, Mr Tsipras committed a critical error by rejecting Mr Varoufakis’ plan B for the moment when the country’s banks closed down: the immediate introduction of a parallel currency - IOUs issues by the Greek state but denominated in euros. A parallel currency would have allowed the Greeks to pay for their daily transactions when cash withdrawals were limited to €60 a day. A total economic collapse would have been avoided.

In Wie Deutschland den Euro sprengt Spiegel Online 20.07.2015, he emphasizes how shortsighted a self-destructive Germany's behavior in those negotiations really were. The short-term destruction, of course, hits Greece. The longer-term destruction will eventually wreck Germany's leadership in the EU if it is not corrected by future, post-Merkel governments. There he writes:

Die Griechenlandkrise hat uns gezeigt, dass eine ökonomisch nicht nachhaltige Situation in kürzester Zeit alle politischen Tabus sprengt. Das Primat der Politik kann sich langfristig nicht über ökonomische Logik hinwegsetzen.

Aus ökonomischer Sicht ist Griechenland im Euroraum nicht mehr lebensfähig. In diesem Punkt hat Wolfgang Schäuble recht. Aus griechischer Sicht wäre ein Austritt besser.

[The Greece crisis has shown us that an economically unsustainable situation can int the shortest time blow up all political taboos. The primacy of politics cannot in the long run prevail over economic logic.

From an economic point of view, Greece is no longer viable in the euro area. On this point, Wolfgang Schäuble is correct. From the Greek point of view, an exit would be better.]

Christiane Amanpour interviewed Varoufakis for CNN International ( Mick Krever, Varoufakis: 'We made mistakes' 07/20/2015):

Varoufakis said he had sympathy for his former boss [Tsipras].

"He was faced with a choice: Commit suicide or be executed."

"Alexis Tsipras decided that it [would] be best for the Greek people for this government to stay put and to implement a program which the very same government disagrees with."

"People like me thought that it would be more honorable, and in the long term more appropriate, for us to resign. This is why I resigned. But I recognize his arguments as being equally powerful as mine."

The video is here, Varoufakis: 'We made mistakes' 07/20/2015:

Why debt sustains corruption in Greece and vice versa

Christos Koulovatianos, John Tsoukalas Vox 20 July 2015

Olaf Boehnke (Greece and Germany's game of chicken European Council on Foreign Relations 07/17/2015) holds out optimism that Merkel may come to her senses:

Although many observers expected that Angela Merkel and Wolfgang Schäuble would have been feted for their victory upon their return to Berlin, the exact opposite has been the case. The tersest reaction came from Thomas Strobl, vice chairman of the Christian Democrats (CDU) and Schäuble’s son-in-law. Prior to the CDU’s steering committee meeting after the euro summit last Monday he said: "The Greek has now annoyed long enough." While Strobl has since been heavily criticised for this remark, this chauvinistic attitude does reflect strongly the sentiment of many people in Germany and in Strobl’s party in particular. ...

These elements - plus the broadening criticism of German hegemony in Europe- may well bring her to the point where she has to demonstrate political leadership in a way Mario Draghi did when he announced that the ECB will “do whatever it takes to preserve the euro”. Once all Eurozone member states have agreed to the new negotiations it would be wise for Merkel to demonstrate her political commitment to the Greek people with a speech in front of the Greek parliament or a public place in Greece in order to reinforce what she has been best at: getting conflicting parties back to the table and finding a compromise. In her speech today, she paid special attention to the importance of the French-German cooperation. If she is really interested in achieving a reliable solution for the current crisis, she and Francois Hollande must include Alexis Tsipras in finding a political agreement which gives him and the Greek people real, not forced, ownership of such a deal.

I don't think Merkel sees the world that way. She the leader of the economically most powerful country in the eurozone and she's done very well from her German point of view with her strategy of domination. One of the greatest risks for political and business leaders is there is an inevitable tendency to continue doing what has been successful in the past. Unfortunately for the eurozone and for the periphery countries especially, what has been successful for Merkel and her hardline neoliberal outlook is horribly destructive for the countries practicing her austerity policies, especially for Greece.

How far will Merkel and the EU go in pressuring Greece?

Politico's European edition had a report last week in which EU Commission President Jean-Claude Juncker, who was backed by Angela Merkel in the most recent European elections, sounds like he's trying to distance himself from the recent flood of leaks from officials sources threatening Greece with explusion from the eurozone currency union (Florian Eder and Carrie Budooff, Juncker: ‘There will be no default’ 04/20/2015):

An agreement on a financial rescue package remains distant, Juncker said, but he ruled out a Greek debt default or exit from the eurozone. In an interview with POLITICO, Juncker said his main reason for optimism rests less on any tangible progress than on the simple fact that the alternative is unimaginable.

Speaking from his office in the Berlaymont building, Juncker pushed back on an increasingly commonplace view among eurozone leaders that a Greek default could be a lever to force the Syriza-led government to get serious about its finances, and that its fallout could be contained. He declined to elaborate on the nightmare scenarios he sees potentially unfolding but warned that the failure to keep Greece afloat would “lead us to consequences that people don’t know the amplitude about.”

“We are prepared for all kinds of events but I am excluding at 100 percent this Grexit, or Greek exit,” Juncker said. “There will be no default.”

This remains the Greek government's strategic advantage in the current negotiations. As badly as Merkel may want to pound Greece into continuing the ruinous austerity policies that have the country stuck in a depression with no near-term prospects of emerging from it, a disintegration of the eurozone would cost German banks and would be enormously disruptive for the German economy. It would also remove the level of power Merkel currently enjoys as the Queen of Europe.

It seems to me she will be highly unlikely to go there. If that's the case, the biggest risk is that she will hold out too long before making a deal and a process of disintegration will start that the eurozone will be unable to control.

While dragging out the negotiations puts continuing pressure on Greece, it also gives Merkel some time to minimize the political shock in her own CDU party and among German voters more generally when and if she capitulates on the Greek austerity program. She and her party have recklessly promoted the idea that Greeks were lazy, irresponsible deadbeats and that's the only real problem. Walking that back will require effort and finesse. Both of which she has repeatedly shown herself capable of displaying.

Former German Foreign Minister Joschka Fischer argued back in February that "Merkel seems to be well aware of the unmanageable risks of a Greek exit from the euro – although it remains to be seen whether she can muster the determination to revise the failed austerity policy imposed on Greece." (Angela Merkel’s Moment of Truth Project Syndicate 02/25/2015) He argues just before that something that does not seem obvious from what I've seen: "Merkel – despite her public image in southern Europe – was not aligned with the hawks in her party and administration" on the Greek crisis, implying that she favored milder policies. I'm not sure how he takes that perspective. But his view is worth noticing. He also writes:

The Greek conflict shows that Europe's monetary union is not working because one country's democratically legitimized sovereignty has run up against other countries' democratically legitimized sovereignty. Nation-states and a monetary union do not sit well together. But it is not hard to understand that, should “Grexit" occur, the only geopolitical winner would be Russia, whereas in Europe, everyone stands to lose.

Though the geopolitical risks have, so far, barely figured in the German debate, they greatly outweigh any domestic policy risks of finally coming clean with the German public. Greece, Germans should be told, will remain a eurozone member, and preserving the euro will require further steps toward integration, up to and including transfers and debt mutualization, provided that the appropriate institutions for this are established.

Such a step will require courage, but the alternatives – continuation of the eurozone crisis or a return to a system of nation-states – are far less attractive. (Germany has a new national-conservative party [the Alternative für Deutschland; AfD] whose leaders' declared aim is to pursue a pre-1914 foreign policy.) In view of the dramatic global changes and the direct military threat to Europe posed by Putin's Russia, these alternatives are no alternative at all, and the Greek “problem" looks insignificant. [my emphasis]