The Greek surrender of 2015: a big misunderstanding?

The Greek surrender of 2015: a big misunderstanding?

“Do you not know, my son, with how little wisdom the world is governed?”

– Axel Gustafsson Oxenstierna af Södermöre, 1648.

(Disclaimer: I’m neither an economist nor a political scientist. I suppose I share that with most people writing on this subject, and it doesn’t seem to bother anyone.)

Virtually everybody writing about the Eurogroup negotiations on a Greek bailout that occurred last weekend seems convinced that Wolfgang Schäuble, the German finance minister, is a monster of some sort. Even supporters of the Eurogroup position seem to think so. Part of this alleged monstrosity consists in a readiness to use power that vaguely corresponds to a certain well known clichè about Germans.

But what if he’s not a monster hell bent on ruining the Greeks to impose a rule of terror on the rest of Europe? Everybody thought Varoufakis & co had a plan, and many are still trying to cope with the realization that they probably didn’t (me included, btw) so maybe it’s time to revise the hypothesis that Mr. Schäuble aspires to be some kind of Vlad the Impaler.

If you substitute this assumption with one where Schäuble is a reasonably nice guy that wants the Eurozone as well as the EU to work, but is constrained by politics, you can construct a theory whereby the disastrous (to all sides) result of the negotiations between Greece and the Eurozone is due to a misunderstanding in the motivations of the different actors. Basically, the theory is based on the following hypotheses:

  1. Nobody seriously believed that the leftist-Keynesian Tsipras-Varoufakis duo possibly wanted something else than a way for Greece to leave the euro without suffering too much wreckage in the process.
  2. Nobody serioulsy believed that, on the contrary, the only real red line of the Greek side was that they wanted to keep the Euro, and were willing to pay any cost whatsoever to this end.
  3. Due to some unfortunate properties of the subject matter (currencies) nobody considered it feasible that the other side would talk openly about their real motives, setting the stage for a massive communication failure.

In this alternative world Schäuble and the German negotiators are probably still wondering how it could be that a real, hard-core leftist Greek government would reject the chance for an assisted (!) Euro exit including debt restructuring and continued membership in the european union, and instead would sell off the country for a deal that is so hilariously bad that it literally benefits no side, simply because nobody expects it to work.

But was Greece offered the option of an assisted euro exit? I think so, but more to that in a minute.

It is widely accepted by now that the biggest problem of Greece is that it has a currency that it can’t devaluate. The best solution, given how the Eurozone is built, is for Greece to get a new currency it can devaluate at will, print at will, etc. Varoufakis writes that this isn’t feasible, but I always thought he meant that it would just be very difficult to pull off unilaterally for a small country that’s basically bankrupt.

On the other hand, there is also a general agreement about it being very toxic to even start talking about exiting the euro. Any official is supposed to be saying, over and over, that the euro is great and irreversible, whatever he/she thinks is true, because doing otherwise would trigger bank runs and other really bad things. A consequence is that a government that decides to leave the euro is indistinguishable from one that wants to keep it, if you go from what its officials are saying about this point. The same applies to statements about wanting to kick a country out of the euro. But when negotiators start second guessing the motives of each other because they cannot use plain language, they risk talking past each other for months and then getting a result nobody wanted.

Now, back to the assisted exit option. On the eve of the very, very last negotiation the following option (due to Schäuble, as rumor has it) appears at the end of a leaked draft agreement:

[In case no agreement could be reached, Greece should be offered swift negotiations on a time-out of the euro area, with possible debt restructuring].

Here is how you could translate it, assuming that Schäuble doesn’t actually want to throw Greece to the wolves.

  • Greece should be offered swift negotiations = Greece will recieve help if it decides to leave the Euro
  • time-out of the euro = Greece gets its own currency and stays in the EU (this is not a small matter!!) plus return option at a later date (ridiculous, but needed so everybody, but especially the Greek government, can keep face)
  • possible debt restructuring = possible debt restructuring! In case no agreement could be reached = the above document is as good an excuse for leaving the euro as we can possibly concoct – and you are here because you need a good excuse back home, aren’t you?

So, under this theory, Tsipras and Tsakalotos were offered debt restructuring and a viable solution to many fundamental Greek problems, including a nice arsenal of strategies to make the implementation politically feasible. Schäuble couldn’t do it openly, so he did it more or less covertly. But Tsipras rejected this option, choosing instead additional pain for the already battered Greek people as well as handing the Eurozone the keys of the country (which it quite likely never wanted). Maybe because he didn’t understand what was happening, or maybe because he has other motives.

Varoufakis said about the proposal that this is the kind of proposal that is advanced when one does not want a deal. Cool, but then – why wouldn’t the Eurogroup want to have a deal? At the moment, the only explanation I’ve seen put forward is that they just wanted Greece to go up in flames.

Maybe, and then they really are all monsters, not just Mr. Schäuble. And pretty stupid, too. I don’t think this is very likely, but maybe I’m naive.

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