Read more: Game on—do Greece's demands make sense, asks Bronwen Maddox
So much for game theory. And for overthrowing the status quo. In the deal struck over the weekend, the new Greek government has sensibly backtracked on pretty well all of the radical, populist promises it made to win power. It has bought time, and instead of the 28th February deadline hanging over the country’s stability—and the eurozone’s—it has four months to sort out a longer term deal. But the problems are still there, and the risk of an explosive exit from the eurozone is still great, despite the comparative calm in the markets (which had expected such a deal). Meanwhile Yanis Varoufakis, the Greek finance minister (and academic game theorist), and Wolfgang Schäuble, his German counterpart, can barely tolerate a conversation never mind a negotiation, according to the drained spectators of the weekend’s confrontation.
It would have been better if Germany had conceded more of the case for allowing Greece some leniency on its debt, which reflects as much the eurozone’s desire to rescue creditors to Greece as it does past mismanagement of the Greek economy. No chance of it; German ministers are fluent in their scorn for the moral case for such leniency (see my previous piece on this). But the deal does also reflect Berlin’s intense desire to avoid a Greek exit from the currency, for all the toughness of the language. Germany is right on this, not least because no one has managed to calculate the extent of Greece’s role in the financial payments system and the destabilising impact of an exit is potentially large.
The best case is that this deal buys time for more talks, and a sophisticated fudge: one that allows Greece more leniency, even if it avoids an explicit write-down of debt, but also pushes Greece hard onto the path of long overdue reforms that are essential for its future prosperity and stability, whether in the eurozone or outside.
What happened? In the weekend’s talks, Syriza, leader of Greece’s new coalition, was forced to withdraw pretty well all the specific key promises it had made to Greeks, such as boosting public sector workforce numbers, pay and pensions. At least, it seems as if it did, but it tried to preserve room for manoeuvre by keeping the details of its future plans vague, while claiming that they still amount to a ditching of the austerity programme of the previous government.
That boast seems flatly untrue. Out seems to have gone Syriza’s pledge to rehire 16,000 workers whose jobs were cut to comply with the provisions of the austerity programme. Out, too, probably has gone the promise of back pay for those who had pay cut or frozen. It looks just like austerity—without the name, and without a few of the specific commitments, such as a numerical target for the budget surplus. As Schäuble said afterwards, with what could easily be interpreted as triumph: “The Greeks will certainly have a difficult time explaining the deal to their voters.”
We’ve been betrayed, was the immediate retort from many Syriza supporters. We voted for radicals; we got the status quo. Expectations had been raised by Varoufakis’s showmanship in the weeks after the election, when in leather jacket, blue shirt and boots, he toured the key capitals of Europe, vowing to do battle with the hated “troika”—the European Central Bank (ECB), European Commission and International Monetary Fund. Furious critics of the deal have hardly been pacified by the coy renaming of the troika as “the institutions.” We’ll now have to see whether Greeks resign themselves to a compromise more bruising than Syriza had promised, or turn to even more radical voices, such as the Golden Dawn.
But Varoufakis had to do this deal, if Greece wasn’t to face exit from the eurozone in a fortnight. The deal removed the immediate threat of the twin deadlines falling due on 28th February. The less important was the payment of the next tranche of the bailout cash (€7.2bn, of the total €172bn). The more important was the threat that the ECB would no longer accept bonds from Greek banks from the same date, effectively bringing the banking system to a halt.
He was also defeated by simple arithmetic, confronted with the impossibility of his pledges, if a bit more quickly than new governments normally are. Greece has promised under this weekend deal “to refrain from any rollback of measures …that would negatively impact fiscal targets, economic recovery or financial stability.” The Greek government could not meet its pledge to “the institutions” to run a primary budget surplus—that is, to spend less, before interest payments, than its revenues—while reversing the previous government’s cuts to the public sector as it vowed straight after the election that it would do.
What happens next? Most immediately, on Tuesday 24th February, eurozone finance ministers will confer on whether to support the deal. Some may argue that Greece has not explicitly conceded enough. Austria may argue that as a point of principle; Estonia and Lithuania on the grounds that they should not have to pay a share of the rescue of a country which is, per head, twice as wealthy; and Spain, for fear of encouraging its own anti-austerity parties. The parliaments of Greece and Germany, as well as some others in the eurozone, have to approve the deal. Not a trivial hurdle.
Second, Greece has to say exactly what it means by its vague package of proposed reforms, notable for being stripped of all the numbers that studded the austerity commitments and its post-election offers to Germany.
Even if all this gets through, the deal lasts only four months, when all the issues will rise again. The appetite for compromise in Greece is unclear: whether voters will accept that even Syriza’s apparent radicals had to bend to constraints, or whether they will go in search of others.
The broader point, of course, is that Greece’s predicament stems partly from its failure to reform its society and economy, still threaded with corruption and cronyism, with a public sector that is large and inefficient, and a private sector that is underdeveloped, except for the barely-taxed shipping families. It will have to grapple with those problems at some point—if its people will elect governments to do it.
So it’s not over. Whatever the Greek team say at home, Germany has won the first round. The best outcome is that this is a match of many rounds, where Germany wins more than half of the points—but not all.
So much for game theory. And for overthrowing the status quo. In the deal struck over the weekend, the new Greek government has sensibly backtracked on pretty well all of the radical, populist promises it made to win power. It has bought time, and instead of the 28th February deadline hanging over the country’s stability—and the eurozone’s—it has four months to sort out a longer term deal. But the problems are still there, and the risk of an explosive exit from the eurozone is still great, despite the comparative calm in the markets (which had expected such a deal). Meanwhile Yanis Varoufakis, the Greek finance minister (and academic game theorist), and Wolfgang Schäuble, his German counterpart, can barely tolerate a conversation never mind a negotiation, according to the drained spectators of the weekend’s confrontation.
It would have been better if Germany had conceded more of the case for allowing Greece some leniency on its debt, which reflects as much the eurozone’s desire to rescue creditors to Greece as it does past mismanagement of the Greek economy. No chance of it; German ministers are fluent in their scorn for the moral case for such leniency (see my previous piece on this). But the deal does also reflect Berlin’s intense desire to avoid a Greek exit from the currency, for all the toughness of the language. Germany is right on this, not least because no one has managed to calculate the extent of Greece’s role in the financial payments system and the destabilising impact of an exit is potentially large.
The best case is that this deal buys time for more talks, and a sophisticated fudge: one that allows Greece more leniency, even if it avoids an explicit write-down of debt, but also pushes Greece hard onto the path of long overdue reforms that are essential for its future prosperity and stability, whether in the eurozone or outside.
What happened? In the weekend’s talks, Syriza, leader of Greece’s new coalition, was forced to withdraw pretty well all the specific key promises it had made to Greeks, such as boosting public sector workforce numbers, pay and pensions. At least, it seems as if it did, but it tried to preserve room for manoeuvre by keeping the details of its future plans vague, while claiming that they still amount to a ditching of the austerity programme of the previous government.
That boast seems flatly untrue. Out seems to have gone Syriza’s pledge to rehire 16,000 workers whose jobs were cut to comply with the provisions of the austerity programme. Out, too, probably has gone the promise of back pay for those who had pay cut or frozen. It looks just like austerity—without the name, and without a few of the specific commitments, such as a numerical target for the budget surplus. As Schäuble said afterwards, with what could easily be interpreted as triumph: “The Greeks will certainly have a difficult time explaining the deal to their voters.”
We’ve been betrayed, was the immediate retort from many Syriza supporters. We voted for radicals; we got the status quo. Expectations had been raised by Varoufakis’s showmanship in the weeks after the election, when in leather jacket, blue shirt and boots, he toured the key capitals of Europe, vowing to do battle with the hated “troika”—the European Central Bank (ECB), European Commission and International Monetary Fund. Furious critics of the deal have hardly been pacified by the coy renaming of the troika as “the institutions.” We’ll now have to see whether Greeks resign themselves to a compromise more bruising than Syriza had promised, or turn to even more radical voices, such as the Golden Dawn.
But Varoufakis had to do this deal, if Greece wasn’t to face exit from the eurozone in a fortnight. The deal removed the immediate threat of the twin deadlines falling due on 28th February. The less important was the payment of the next tranche of the bailout cash (€7.2bn, of the total €172bn). The more important was the threat that the ECB would no longer accept bonds from Greek banks from the same date, effectively bringing the banking system to a halt.
He was also defeated by simple arithmetic, confronted with the impossibility of his pledges, if a bit more quickly than new governments normally are. Greece has promised under this weekend deal “to refrain from any rollback of measures …that would negatively impact fiscal targets, economic recovery or financial stability.” The Greek government could not meet its pledge to “the institutions” to run a primary budget surplus—that is, to spend less, before interest payments, than its revenues—while reversing the previous government’s cuts to the public sector as it vowed straight after the election that it would do.
What happens next? Most immediately, on Tuesday 24th February, eurozone finance ministers will confer on whether to support the deal. Some may argue that Greece has not explicitly conceded enough. Austria may argue that as a point of principle; Estonia and Lithuania on the grounds that they should not have to pay a share of the rescue of a country which is, per head, twice as wealthy; and Spain, for fear of encouraging its own anti-austerity parties. The parliaments of Greece and Germany, as well as some others in the eurozone, have to approve the deal. Not a trivial hurdle.
Second, Greece has to say exactly what it means by its vague package of proposed reforms, notable for being stripped of all the numbers that studded the austerity commitments and its post-election offers to Germany.
Even if all this gets through, the deal lasts only four months, when all the issues will rise again. The appetite for compromise in Greece is unclear: whether voters will accept that even Syriza’s apparent radicals had to bend to constraints, or whether they will go in search of others.
The broader point, of course, is that Greece’s predicament stems partly from its failure to reform its society and economy, still threaded with corruption and cronyism, with a public sector that is large and inefficient, and a private sector that is underdeveloped, except for the barely-taxed shipping families. It will have to grapple with those problems at some point—if its people will elect governments to do it.
So it’s not over. Whatever the Greek team say at home, Germany has won the first round. The best outcome is that this is a match of many rounds, where Germany wins more than half of the points—but not all.
