By Tim Worstall, Forbes
This Sunday the Greek government is in talks with the troika, the Eurogroup, the ECB and the IMF , over the necessary bailout deal Greece needs if it is to avoid default. The word coming out of those talks over here in Europe is that no deal is in the offing. Given that the next major cash crunch for the country is on Friday, when a repayment to the IMF becomes due, no one’s really quite sure whether there will be a deal or not.
The most interesting thing about this though is that we’re seeing more of the Greek negotiating strategy. And also, how they might have missed something that the troika did some time ago to blunt, make less effective, that very negotiating strategy.
The news itself:
Greece and its creditors were continuing talks on a cash-for-reforms deal but are expected to miss a self-imposed Sunday deadline for reaching an agreement to unlock aid, sources close to the talks said.
Athens and its euro zone and International Monetary Fund (IMF) creditors have been locked in talks for months without luck on a deal. Pressure to strike one has intensified as Athens faces a debt payment on June 5 as well as the expiration of its bailout programme on June 30.
Not much change from the news we’ve all been hearing for months now then.
Athens has frequently said it is on the verge of a deal in recent weeks but international lenders have been less optimistic, citing Greece’s resistance to labour and pension reforms that are conditions for more aid.
That is pretty much it. Everyone’s willing, or so it seems, to let things like the formerly required large primary surplus slide but they do want to be able to tell everyone that they have forced internal change upon the Greek economy. There’s a political background to this (of course there’s a political background to it!). All of the politicians are very well aware that whatever deal they offer Greece they’ve got to be able to sell to their own voters back home. On the entirely logical, fair and just, basis that it is those voters back home who are putting up the money for whatever bailout Greece gets.
The following may not be true: but that doesn’t matter, politics is about what people believe, not what is true. And the general Northern European assumption is that the Greeks retire on full pensions at 50, do no work when they still have a job and that the Northern Europeans are being forced into paying for all of this. I work in Germany part of the time and seriously, the man in the pub will not vote for a politician who lets the Greeks off labour and pension reform. May be fair, may not be fair, but it is reality.
So that’s the immovable object. But then we see part of the Greek negotiating strategy:
With technical talks yielding no breakthrough, Greek Prime Minister Alexis Tsipras might seek the intervention of German Chancellor Angela Merkel and French President Francois Hollande. The three leaders are scheduled to hold a call on Sunday evening in the context of “political negotiation,” the Athens News Agency reported today, citing unidentified Greek government officials. Spokespeople for the German and Greek government declined to confirm a call would take place.
As everyone should know about European Union politics those technical talks, on any subject whatsoever, don’t really mean all that much. The real deals are done in late night arguments among the major power brokers within the system. And, if that’s all Greece faced then there’s a fair bet that their strategy would work. Bulldoze through those technical talks, delay until something, anything, must be done and then depend upon those power brokers to think that saving the euro, eurozone and ever closer European unity is more important than any silly details over pensions or labour law.
Not a bad strategy, wouldn’t mind using it myself. However, that troika is that troika because some saw it coming. It really is most unusual that the IMF is part of this second bailout of Greece. Because the terms of the bailout directly contradict the standard IMF advice in such cases. There was no debt haircut and there was no devaluation. But some members of the Eurogroup insisted that they would not take part without the IMF. Why would they do that?
Because with the IMF there then this cannot all be decided in the back corridors of he European Union. Whatever deal there is must meet the IMF’s standards. And they’ve already said that an interim deal won’t work, that without those domestic reforms they won’t even cough up their part of the last tranche of the last bailout (that €7 billion that the current talks are all about).
So, Tispras is appealing to the standard EU decision making process, the grandees over riding, if need be, the technocrats. But that the IMF is in there means that the grandees cannot over ride said technocrats. Which makes the Syriza and Tsipras negotiating technique, well, let’s say a lot less potentially successful than it would be without the IMF there. And that of course is why the IMF was dragged into the second bailout in the first place.
My own reading of the likelihood of success is as it has been for a long time now. If Greece does default, if it leaves the euro (not the same thing, the second is not essential if the first happens) then it’s more likely to be as a result of mistakes in negotiations than complete inability to reach a deal. The mistakes being misunderstandings (possibly on both sides) about what the other side will accept.
