Greece: The Negotiation That Never Happened…

Yves here. Regular readers have heard me express considerable frustration with how Greece’s ruling coalition has handled its negotiations with the creditors. Some have objected, particularly given that I’ve also said Greece’s odds of prevailing were low in the absence of support from the US or groups outside Greece, like leftist parties in Europe. If Greece faced such long odds, why did their negotiating approach matter?

Vassilis Monastiriotis has had the same reservations that I’ve had, and not only does a better job than I have at articulating some of the shortcomings, but also sets forth an illustration of how Greece could have made its case much better. Remember, this mattered precisely because everything Greece did has been in such a fishbowl. The overexposure, which has proven to be a liability, could have been used to gain some ground in the talks.

By Dr Vassilis Monastiriotis, Associate Professor in the Political Economy of South Eastern Europe. Originally published at Greece@LSE

There are – there have always been – two approaches to the Greek crisis. One, that realises that there is a domestic problem (high debt, propensity to produce new debts, state and market inefficiencies, weak institutions and export base) and many political and legal external constraints (no-bailout clause, belief in fiscal discipline and the ideology of structural reforms, the statutory clauses of the ECB and the IMF); and thus seeks to explore a possible set of arrangements that will enable a – least costly – solution. And a second one, which sees the crisis as the outcome of global capitalism, of antagonistic economic and political relations, of hierarchies and power struggles within the Eurozone, of pressures emanating from powerful (and neoliberal) elites, and as a means to attack human (and distinctively Greek) rights; thus favouring a confrontation approach that essentially refutes the existence of the problem in the first place.


It is no revelation to say that it is the second set of interpretations that have dominated public discourse and policy in Greece since the onset of the crisis – well before SYRIZA came to dominate Greek politics. From the ‘resistant’ backbenchers of PASOK in the first pension reform in spring 2010, to the defiant ‘Zappeion moments’ of ND leader Samaras, to the “pay not” movement and “indignant” demonstrations in Parliament Square, to the more recent gibberish of current government officials, in Greece at large, the crisis – and the bailout(s) – have been interpreted not as a challenge for fixing long-looming problems and working with a set of diverse but resource-pooling partners to find viable solutions to common threats; but as a confrontation, a war, between the evil ‘them’ and the victimised ‘us’.


In my experience, those siding from the start with the first interpretation have often been viewed by the ‘anti-memorandum camp’ as insensitive market-apologists and austerity enthusiasts, who have no respect or understanding of the real plight of the real people – even though many of them are real people (whatever that means) and have families, friends, neighbours and colleagues who have been experiencing real plight. For this ‘pro-memorandum camp’, which was already disillusioned by the actions and rhetoric of the PASOK and New Democracy governments at least since 2011, it became clear from quite early on that SYRIZA had a very weak understanding of the politics of the Eurozone and of the economics of the crisis, and very limited capacity to articulate and implement a plan for exiting the crisis – may I say, at the great disappointment of some, as this meant that the left-wing answer to the challenges of austerity in Greece was neither available nor forthcoming.


But even the most pessimist sceptic could not have expected the idio(syncra)tic, irresponsible, naive and counterproductive attitude and approach to the negotiations that we have seen over the last 4-5 months. And the culmination of all these into what is clearly a terrible deadlock, with the stance of the “troika” becoming tougher as the economic situation in Greece deteriorates and SYRIZA finding it harder to come to terms with this new, but really impossible from its own standpoint, reality. In this, the threat of Greek default and ‘exit’ seems now more imminent than ever; and the ‘best-case scenario’ – fresh elections, formation of a cross-party unity coalition government and implementation of a new round of harsh(er) austerity measures – is really and truly anything but good.


Personally, despite the signals to the contrary that I was receiving for a long time from discussions with SYRIZA sympathisers and officials, I always thought that SYRIZA’s negotiations would go more or less along the following lines.

SYRIZA. You asked for the full decentralisation of wage bargaining, as a means for strengthening wage adjustments in the country (arguably, to ease the quantity adjustment through unemployment) and lowering labour costs (to increase Greece’s international price competitiveness). We believe that the effect of this was a stronger decline in effective demand and a reduction in consumer confidence and domestic consumption, as decentralisation brought more income insecurity. Moreover, given the production structure of the economy (small firms, consumer services, low export orientation and capacity) and the cost structure of production (heavily influenced by high energy and distribution costs) this did not help with exports – as is also clearly evident in the data. [Note that your very own Prof Olivier Blanchard, Chief Economist of the IMF, had already in the 1980s identified that under such conditions structural reforms and internal price adjustments would become too costly in economic terms and too difficult to implement politically.] Similarly for minimum wages. Although by now there is some evidence suggesting that the reduction in minimum wages may have had some positive employment effects, it is well known that in the presence of asymmetric market power by employers and ‘thin’ labour markets minimum wages do no produce negative employment effects. We thus ask to restore collective bargaining at the sectoral level and implement a partial/gradual recovery of the minimum wage, so as to boost effective demand, bring more income security to domestic consumers and push producers away from (labour-)cost saving technologies and (short-termist) coping strategies; and to instil a bit more economic confidence and political faith to the ailing Greek public.

Troika. Well, perhaps. We are well aware of the literature on the low wage – low productivity trap – even though there is certainly no universal agreement on this. But this doesn’t address the problem of wage adjustments and of unemployment. Mind you, these also have implications for tax receipts and the financial viability of social security funds. How will you address competitiveness, adjustment, unemployment and the viability of the social security system??

SYRIZA. Well, a number of things. First, the viability of the social security system is hindered, not helped, by the lower contributions associated to lower wages. But we want to move beyond this. We will deregulate the transport sector (occupational licensing and permits) to reduce production costs. We will establish, with your financial and technical assistance, an export promotion mechanism/office, which will assist small businesses in pooling resources to identify exporting channels and new markets and exploit synergies in sharing distribution networks. We will also lower energy taxes and shift taxation (to make up for the reduced revenues) to (a) non-reinvested profits (to incentivise investment and job creation), (b) high-income earners (to enhance the sense of ‘fairness’ to society and also support our mandate for redistribution), and (c) property holding/investment, which is universally seen as least productive. Last, we will abolish the Pensioner Social Solidarity Benefit (ΕΚΑΣ) which currently burdens the social security funds and instead implement the Minimum Income Guarantee scheme already piloted by the previous government, which is much more effective in targeting poverty.

Troika. Sounds plausible. The OECD, the World Bank and others have long been calling for some of these measures. But by re-centralising wage bargaining you are also increasing union power, which means potentially more strikes, more resistance to reforms and to economic modernisation and more rent-seeking. It all means that sectoral adjustments – and the restructuring of the economy – ain’t gonna happen. How about that?

SYRIZA. Like the Commission (roadmap for a new industrial policy, Juncker Plan), we believe in an active role of the state in steering businesses to new opportunities and new markets – not ‘picking winners’ but creating an environment for winners. We will stabilise and simplify our corporate tax code and provide tax incentives (tax breaks etc) for new firms and firms reorienting their production to new products, new markets and new technologies. This will be assisted by the establishment of a select few special economic zones, to encourage in particular incubator firms and foreign investors. We will utilise our strong relationship with low-level unions to establish channels of tripartite dialogue for a new social contract / social pact that will see industrial peace in exchange of managed wage increases (in line with productivity) and better social protection (including universal access to health-care). We will encourage the establishment of apprenticeship schemes and gradually introduce a stronger vocational leg to our education system to address long-standing (even pre-crisis) problems of employability, sectoral mobility and graduate unemployment. All this will take time and will require further concessions from your side on issues such as the primary surplus targets and the terms of repayment for the debt. But we believe this is the way to go: the depth of the recession over the past years and the increasing public discontent with austerity shows that this is the only politically and economically viable solution to the crisis for Greece. For our part, we will also pursue an elaborate – albeit selective – privatisation plan which will bring-in new investments in productive (and job-creating) activities: not an unconditional sale of state property prone to asset-stripping, but the strategic sale of key infrastructures (ports, airports) and production units which will bring new investments directly into the production process. For this, we ask for the temporary suspension of some EU competition rules, so as to be able to enter in preferential negotiations with some strategic investors.

Troika. This all sounds (too) good (to be true). How can we trust you that you will deliver??

SYRIZA. We have a young electoral base and we are not connected to big businesses and established oligarchs. We draw our public support on the sense of fairness and redistribution. By opening up opportunities for the have-nots and really laying out a new vision for Greece we will legitimise actions that will attack established interests – some of which are also favouring the less well-off – thus being able to free up sectors that are long tormented by institutional and other rigidities. But to do all this we need to go beyond the decentralisation of wage bargaining and the rise in minimum wages. We need to be allowed to reinstate public sector employees whose dismissal has been deemed unconstitutional by our High Court. This requires more money but it is essential for our political viability and the legitimisation of our reform effort. We also need to establish – beyond the Minimum Income Guarantee scheme – a viable and modern unemployment insurance scheme, which will be focused on activation but will provide adequate security for those falling into unemployment. For this, we request additional ESF financing under the Youth Guarantee scheme and relevant technical assistance. Further, the legitimisation of our reform effort requires a serious reconsideration – and thus a temporary relaxation in the first place – of some aspects of the pension reform agreed with the previous government. We commit to abolish with immediate effect some excessively favourable provisions, such as the 15-year contribution threshold for mothers of under-age children and the transferability of pensions to offspring. But we need to reconsider the financing needs of the social security funds and apply more generous transition periods for the increase in the pensionable age – to protect those with so-called ‘mature’ pension entitlements. Last but not least, we also need to work on a more viable solution to the problem of over-indebted households. On this, the release of funds withheld from the Hellenic Financial Stability Fund, to be used in recapitalising Greek banks after a prospective ‘red mortgages’ settlement, is considered essential.


I may have been too optimistic, naive even, in believing in such a scenario. Perhaps the troika was never interested in such a conversation and perhaps they were firmly and immovably stuck in their “neoliberal” interpretation of the world, where good things come only with less state and with free(er) markets. Perhaps, even if they were to consider engaging in such a conversation, the end-result would have been too close to the ‘austerity orthodoxy’ and too far from SYRIZA’s own ‘Thessaloniki programme’ – too far for SYRIZA (and the Greek electorate) to accept it. But what is now blatantly clear is that this conversation never happened – worse, it was never sought for. SYRIZA had neither the skills nor the political open-mindedness to engage in such a conversation. All that was there, was a superficial rhetoric about a ‘humanitarian crisis’ and claims about the unfairness of the rescue packages – as if fairness was ever a priority consideration in any rescue operation. And, underneath this, a fatal incomprehension of the full nature of the crisis and of how uncertainty, instability and indecision were depriving the economy from its slimmest of hopes for recovery.


SYRIZA thought that the economy (and the world) would stand still and wait for them to convince everybody else about the righteousness of their views – without ever getting into negotiating on the details. Rightly or wrongly, this didn’t happen. So, here we are today, truly between a rock and a hard place: between an all-out default and the implementation of the deepest austerity yet; between the complete ‘rupture’ and the continuation of an adjustment programme which creates more impoverishment before it generates any recovery – especially so when it is reluctantly and dubiously implemented. It has long been the case that the first option (a ‘Grexit’) would represent a nemesis for Greece – some would even claim a well-deserved one (see also this piece of evidence!?). From where things stand today, it seems there is very little else one can wait for…

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  1. Robert Dudek

    This fictitious dialogue between Syriza’s and the troika was impossible because of the troika’s attachment to neoliberalism. It is pure delusion to suppose it could have happened. The proof is that it did not happen in 2012.

    The root of Syriza’s negotiating errors is that they still believe they are negotiating with partners, instead of oppressors. The author swallows that erroneous assumption even more so.

    1. vidimi

      I may have been too optimistic, naive even, in believing in such a scenario. Perhaps the troika was never interested in such a conversation and perhaps they were firmly and immovably stuck in their “neoliberal” interpretation of the world, where good things come only with less state and with free(er) markets. Perhaps, even if they were to consider engaging in such a conversation, the end-result would have been too close to the ‘austerity orthodoxy’ and too far from SYRIZA’s own ‘Thessaloniki programme’ – too far for SYRIZA (and the Greek electorate) to accept it. But what is now blatantly clear is that this conversation never happened – worse, it was never sought for.

      i agree that the author attributed perhaps a little more good faith to the troika than i would have, but he addresses this issue and explains why it’s moot.

    2. Cugel

      Perhaps the troika was never interested in such a conversation and perhaps they were firmly and immovably stuck in their “neoliberal” interpretation of the world, where good things come only with less state and with free(er) markets.

      Yves, I think your attempt to take the analysis beyond the “oppressors” and “victims” model which doesn’t tell us anything we didn’t already know, is a good thing, and that is the real value of this site, but I was struck forcefully by the impression that your “Troika” representative in your imaginary dialog was nothing like the real Troika representatives. The whole negotiations have looked like a group of scientists trying to negotiate with oil industry executives about what steps are needed to lower carbon emissions.

      Nobody is going to convince the Troika and governing institutions that they need to abandon Austerity and allow Greece to run a primary deficit, because Austerity doesn’t work. Not merely because of their ideology, but because that would mean surrendering part of their power.

      The latest move of the IMF to abandon the talks and fly home merely emphasizes this:

      “People familiar with the talks said the two sides have come closer to agreeing a primary surplus target but are still wide apart on how to achieve it, with EU and IMF experts doubting that measures touted by Greece can do the job.”

      “Close to agreement,” when you’re dealing with billions of Euros is not “close to agreement” at all. And the reason why the Troika is skeptical that Greece will be able to meet the target is because there’s no hope at all of meeting the target, because it’s a moving target. The more Austerity that is applied, the worse the recession, the lower the tax revenues, the higher the deficit, and round and round. They won’t accept basic reality on this point, so what real room is there for reaching agreement on this point?

      Syriza has clearly not been serious about meeting the surplus targets for 2016 because they recongnize them as absurd fantasies. Rather than argue the point they tried to simply get past 2015 with vague promises and the hope that the continued decline in the Greek economy by January 2016 would convince the Troika to give them some debt relief. Their entire approach has been crisis management, while the Troika has been looking for signs that Syriza is really going to swallow the entire bailout program without significant changes – impossible surplusses and all.

      Thus the anger of the Troika and constant rejection of Syriza’s positions on reforms as “insufficiently detailed”, like someone complaining that Syriza is not offering a realistic road-map including detailed timetables indicating exactly how they are going to drive from Athens to the Moon. The fuzziness of the Greek proposals masks a basic inability to provide detailed instructions on how they will achieve the impossible while screwing the most poor people into the ground into the process.

      But, at the same time, while Syriza was naive to believe they could reason with the creditors and find some common ground by pointing out that everybody stood to benefit from abandoning the fiscal targets and “structural reforms”, they really didn’t have much alternative.

      At best your criticisms demonstrate that Syriza could have marketed their position better to the world, they should have been better prepared with their program. It’s difficult to see how that would have changed anything. Nothing indicates that if they had offered the specific program you talk about the Troika would have entertained it for one minute.

      My own naivety was the belief that European leftists would rally to the support of Greece and make the Greek cause their own amid massive demonstrations and ultimately generate a European wide resistance movement dedicated to rejecting Austerity and taking power away from Conservative parties and providing an opening for socializing decision-making. That certainly didn’t happen.

      Neither did my expectation that the Obama administration would lean on the Germans because the last thing they need right now is another European-wide recession that depresses the U.S. economy and perhaps pushes it back into global recession. Apparently, despite the statements from the U.S. Council of Economic Advisers condemning the Germans for being so smug about “containment” no real pressure on Germany has been evident at all. Instead Obama is attempting to shore up relations with Merkel to deal with the “strategic threat” to U.S. power represented by Russia, and Greece is an unwelcome side-issue. His latest statement to the effect that “both sides need to come together” is crystal clear – the Greeks need to capitulate and we’re going to do nothing to help them.

      Neither was Putin interested in bailing out Greece, despite a couple of desperate ploys by the Greeks staged around the gas pipeline. So, the Greeks are being sacrificed on the altar of Euro power-politics, while the casino winners on the Titanic feverishly grab their cash and head for the lifeboats instead of trying to save the ship.

      1. Gio Bruno

        I share these sentiments/observation.

        Not until the “naivete’ ” of hoping for broader political solidarity with Greece against the neoliberal financial noose is removed will we see real improvement.

        1. Pancho

          > The whole negotiations have looked like a group of scientists trying to negotiate with oil industry executives about what steps are needed to lower carbon emissions.

          You nailed it. They had to try negotiating though in order to be credible.

          > At best your criticisms demonstrate that Syriza could have marketed their position better to the world, they should have been better prepared with their program. It’s difficult to see how that would have changed anything.

          Agree with this, too.

          In the end, however, I can’t agree with your pessimistic outlook.
          Of course, a great many things may happen in the short and medium term, including a Grexit with or without terrible consequences. But I disagree that nobody would be interested in Greece.
          The BRICS perspective would be a fully viable Plan B, if the stubborn creditors keep obstructing the European Plan A. Also, don’t you underestimate the Syriza government’s readiness and ability to do meaningful, sensible reforms regarding society’s effectiveness, just not that kind of illogical and inhumane so-called-reforms the Troika likes to impose.

          Greece will be quite fine in a few years. It’s just Europe that has to decide if it wants to learn a lesson or be doomed to failure and demise.

    3. fajensen

      What works against a stronger opponent is: Speed, Aggression and Surprise.

      The Greeks squandered Speed & Surprise by negotiating for 5 years, always kicking the can a little bit further down the road, allowing the opposition to get their positions in order. I don’t see any Aggression – there has been no leaks of documents or other back-stabbing against the Germans.

      If the Greeks wanted to get out ahead of this, they should have moved fast to implement currency controls, then threaten a straight default & euro-exit while the the euro-zone was still worrying about the PIIGS, if that is not surprising or aggressive enough, one could start something with Turkey or Macedonia. Anything that made interest rates go up was poison for the over-leveraged bankers – now, they are all set to cash in of course.

  2. Tom

    Downright excellent. Fantastic piece. Couldn´t be put better. If you want to confront some truly insane requests from abraod you should first put your own house in order. Instead Syriza has just been dreaming on. What a disappointment

  3. Lune

    With all due respect, I think the author is being naive. The current Greek administration, albeit very clumsily and with poor negotiating skills, has offered much bigger concessions than what the author has proposed but been turned down by the Troika nevertheless, even for temporary relief of their debt obligations.

    The problem now is that both sides have come up with victimizing mythologies that prevent any form of reconciliation. The Germans view themselves as the generous lenders who are now being shaken down by profligate Greeks who refuse to pay their debts (nevermind that money came back to Germany in the form of German exports), while Greeks view themselves as helpless victims of greedy Germans bent on destroying their society (nevermind the Greeks willingly signed up for the EU and enjoyed years of lower borrowing costs which they wasted rather than investing in their economic potential).

    The first thing a victim usually wants is retribution. There is very little negotiating to be done when that’s the prime motivation on both ends.

    1. John Jones

      nevermind the Greeks willingly signed up for the EU and enjoyed years of lower borrowing costs which they wasted rather than investing in their economic potential)

      The Greek GOVERNMENT signed up Lune. The people were and are largely ignorant of the effect of the E.U and Euro rules causes and caused on there economy and are in fear of leaving.

      The borrowing went to prob up banks from a 1980s crisis and after the GFC. To building roads and infrastructure to bring in core Euro country products. And to run the country because it was bleeding more money from Trade imbalances to the euro core than it was receiving. What money would be left to make these investments?

      One people is having their society destroyed and one is doing just fine. Tell me how Greeks are not victims in this case.

  4. salvo

    exactly my thoughts, it’absolutely delusional to attribute the current impasse to a lack of soft (nagotiation) skills while it’s basically about a power struggle and the unreleting will of one side (the creditors) to bring a left government to fall

    1. alex morfesis

      no one can bring down the syriza government except themselves…

      they could have done a triple reverse back flip on all the red lines that they “dare not cross”
      and just found a few greedy ND or PASOK or other smaller party members to vote in return
      for some assistant minister of nothingness jobs…it is greece…

      but DR V/M is quite right…and quite frankly, syriza could have said yes yes and yes to the troika
      and done a nod and wink to its backers and they would have been fine for a year…

      there seems to have been no day after the victory plan…which is
      sadly a meme of the average greek…sorry…sad but true…

      there is never a plan…just, let’s see what we can get out of the negotiations…

      forgetting that time is the most valuable asset in the world…

      1500 unused islands…100 governments outside the eu…give leases to the
      consulates of the nations so that technically they are sovereign inside the
      EU…no need for special trade zones and blah blah blah…let them bring in
      their own labor and their own rules…with a slow engagement of greek
      workers over 10 years…it is the california plan…california lives off the
      asianization of americas economy…Greece would be the hub for
      entry into EU market for many countries…also, by having foreign retirees come
      to the consulate island/nations in Greece, they would bring their pension money and
      use it in Greece proper…

      it would further enhance greece as a tourism mecca
      as people could enjoy various cultures by just island hoping…

      the only issue would be having greeks do the construction or having a major
      part in it as part of the deal…

      by having major manufacturing hubs designed around things greece currently
      imports, it would reduce the outflow of capital and create a more stable country

      and coming to terms with turkey over the natural gas that is sitting between them
      is one of the most important issues on the table…the natural gas does neither
      country any good sitting in situ…

      and using a few dozen uninhabited islands as safe zones for LNG would change
      the dynamics for european manufacturers…and obviously greece…

      but, again…no thought…no plan…

      the only thing that syriza seems to really have forgotten to play up is how the troika had
      no serious problem waiting on the previous governments.

      1. alex morfesis

        yes indeed

        smart negotiations should never be about power struggles

        that is a waste of human energy…

        one should have an idea of what your opposite is capable of from
        past activities and work to try to give the other side more than they
        expected but with a changed dynamic as to your end game and
        expected net results

        negotiations have no need for ego

        If you begin every negotiation with limited
        concern to losing and have the added
        vision of the take away…it does not have
        to end up as a power struggle…

        Greece has other possibilities that it needs
        to accept and adjust to…it has strategic
        positions that are not carved into the past…

        a net result…a victory…even by retreat

        stability leads to possibilities

        yes, it seems there is no end game here…that it is all just noise…

        there is victory in strategic retreat…ask the germans on the eastern front

        stalin lulled them into a sense of victory…and let reality kick in a few months later…

        1. Cassiodorus

          Smart negotiations might not be about power struggles, but these aren’t “smart negotiations.” Nor could they possibly be. This is about showing the outside world “look, we tried our best, but the other guys refused our best offer, so they’re to blame.”

  5. paulmeli

    The narrative continues to be ‘there is no solution’ and ‘the Greeks will have to suffer in perpetuity’. And ‘they deserve it’.

    The billions of words that have been written about this slow-motion-train-wreck have not changed the ‘conventional wisdom’ one whit.

    Maybe once again the ‘conventional wisdom’ is wrong.

    1. Synoia

      Maybe once again the ‘conventional wisdom’ is wrong.

      I believe that’s what SYRZIA said. I also believe the Troika, and the Germans do not want to hear that.

      Do not underestimate German stubbornness, rooted in a degree of self-righteousness.
      Consider the history: the 30 years war, the Franco-Prussian war of 1870, WWI, and WWII.
      These are not the actions of people who are flexible, can see multiple points of view, negotiate well, and seek middle ground.

      Ja, dat is Detusche.

      1. RabidGandhi

        Just as the rants about lazy Greeks drinking ouzo in cafés while the rest of Europe slaves are utterly racist and untrue, so this two-dimensional view of Germans is likewise false and ignores the healthy number of Germans (such as Die Linke) who are standing in solidarity with Greece.

        Neoliberalism is not deutsche, it’s bankereese.

        1. paulmeli

          Germany practices the most virulent form of neoliberalism, and holding the bulk of the power wrt Eurozone monetary policy has a huge influence on who gets strangled by it.

          The way I read the comment Germans (as a country) are ill-informed and irrational when it comes to ‘how money works’, and that reflects on it’s population, most of whom appear to be cheering on this sorry spectacle.

          1. David

            Syrzia could have made an effort to bring the German people on-side. Instead, they talked about German occupation and war reparations. Not the best way to make friends.

            Life is not that great in Germany either.

            There was/is a lot of empathy in Europe for Greece. Unfortunately Syrzia doesn’t have the skill to take advantage of that.

            Hopefully, the Spainards will have better success when it’s their turn in front of the troika.

            1. John Jones

              Syrzia could have made an effort to bring the German people on-side. Instead, they talked about German occupation and war reparations. Not the best way to make friends.

              So Greece should never talk about these things again? Its ok for Germany to morally judge others but not for Greece to respond?

            2. Oldeguy

              Fully concur; anyone so obtuse as not to realize that a Nation’s foreign affairs are at least half Public Relations has no business running a country in crisis.
              This reply is to David.

            3. Pancho

              Empathy is one thing, but as long as it is based on seeing the “ordinary Greeks” as victims of some kind of natural disaster or of the affairs of an abstract “unjust world”, the Greeks can’t buy much from this empathy.

              Certainly, even center-left Germans don’t like to realize that it’s their country’s relative wealth and the power of their own government that is largely responsible for the humanitarian crisis in Greece. But if they don’t have the necessary class standpoint to understand that the only ones profiting are their most well-off elites, they obviously aren’t reliable allies. Neither are the largely pro-austerity and social chauvinist right-wingers in Germany (see CSU, Alternative for Germany, Pegida). And the German media’s battle against Syriza started more or less on day zero after the January elections.

              So unfortunately there’s no love lost in the German mainstream. The more, it was a courageous, yet appropriate step to finally bring up the war reparations issue which in the Greek public has been present but muted for so long.

      2. James Levy

        The 30 Years War was started over a religious struggle in the Czech lands and spread throughout Europe. In 1870 it was France that stupidly declared war on Prussia. Nice call avoiding that Louis XIV and Napoleon century and a half. World War I was started by Serbia and Austria and Russia; no serious historian today argues that Germany caused or started World War I. World War II was a pure act of insane aggression on the part of Germany.

        This kind of racist clap-trap is utterly useless in explaining anything. By this logic Germany should have the greatest army on the Eurasian landmass and be chomping at the bit to use it–they’ve got the money and the technology. But surprise! surprise! Russia, China, India, France and the UK all have more effective military forces than Germany does.

        BTW, I think the Germans are being greedy and stupid in all this. But all kinds of people can be greedy and stupid. Just look at Washington, or Wall Street.

        1. Cugel

          Why would the Germans need an army to occupy Southern Europe, when they have an army of bankers?

          1. James Levy

            Because when push comes to shove, you can tell the bankers to get stuffed if you want to suffer the consequences and be done with them. You can ask the Vietnamese or the Iraqis what it’s like when it’s a real army occupying your country. I’d say one is several orders of magnitude worse.

        2. Jim

          Germans are not going to become Greeks and Greeks are not going to become Germans. It’s pointless to argue over who is better. The Greeks and Germans need a divorce. This marriage is hopeless.

        3. John Jones

          BTW, I think the Germans are being greedy and stupid in all this. But all kinds of people can be greedy and stupid. Just look at Washington, or Wall Street.

          And do you think a lot have been racist James or not?

    2. Yves Smith Post author

      We said Syriza needed to rally support from outside to have any chance of prevailing. They were in the midst of a PR war. For instance, has Syriza ever talked in human terms about the suffering in Greece? They just assume that everyone knows how bad things are. “Humanitarian crisis” is a bloodless, technocratic term. And Varoufakis had and continues to have tons of media access and in the beginning was treated very favorably.

      Syriza also agreed early on to always run a primary surplus target., so despite the defiant rhetoric, they’ve actually agreed to continue austerity. Why Syriza defenders fail to see that Syriza conceded on the basic issue of austerity or not is beyond me. And in the meantime, they’ve stripped the country bare of funds to pay creditor bills, so if the country defaults, it will default in the worse possible condition.

      Syriza is responsible for Greece, is on a path where default is likely, and the government looks to have done no preparation for a default (we have a post on some of the operational issue). That would mean they’ve been true to their word of not having a Plan B. But if you are running a country, it is an abdication of your duty as leaders not to plan for worst-case scenarios.

      1. Gaylord

        Yves keeps saying Syriza needed to “rally support from outside” — well, they have rallied support from Russia and although nothing immediate and substantive has been revealed, there surely are plans that will be carried out in the event of a Grexit. And making this assumption that Greece’s ” government looks to have done no preparation for a default” — does anybody think they would be so foolish as to announce such preparations or begin making them during the negotiations? That would bring the full weight of the Western criminal banksters down on them, as happened in Ukraine.

  6. RabidGandhi

    OK I may be way out of my league in these assumptions and I hope others will correct me where I am wrong, but:

    1. Monastiriotis seems to be falling into the same fallacy as Syriza, and he even says this in his disclaimer:

    I may have been too optimistic, naive even, in believing in such a scenario. Perhaps the troika was never interested in such a conversation and perhaps they were firmly and immovably stuck in their “neoliberal” interpretation of the world

    but this seems to be the exact error Syriza have made: the idea that “if we can just get the Troika to see reason.” Politicians do not listen to reason, they listen to power, and the power behind the Troika are neoliberal bankers. Therefore Greece does not need to convince the Troika of the correctness of its programme, but rather of the power that they wield: the true deleterious effects of Grexit (which Syriza took off the table from the outset). Meanwhile the people that do need to be convinced are the people in Greece, Spain, Italy, Ireland, etc. where solidarity can throw a spanner into the neoliberal gears. Syriza have failed on this account too.

    2. Honest question: fishbowl notwithstanding, how do we know that this was not Varoufakis’ original strategy upon his first meeting with the Europgroup, is everything actually published? The only part I find implausible are the fanciful Troika answers. I rather see them answering “that’s a wonderful story, now tell us which utilities you’ll be privatising.”

    3. I may be wrong, but every time I hear the Eurocrats saying Greece is not being specific enough, it sounds to me as if they are saying “you are not saying what we want you to say. Go back and write it again” while Syriza think they can dance around that and get what they want. It’s more the two sides’ intransigence rather than the inefficient lazy Greeks not doing their homework right, but that’s the way it makes it into the press.

    1. sd

      A lifetime ago, I went through a phase of getting the same criticism at work, that I “did not communicate well.”

      So I made a real point of improving my communication which essentially came down to putting everything in writing in memos. The criticism continued. It was at that point that I realized, the problem wasn’t that I didn’t communicate well, the problem was that I told people things they did not want to hear let alone deal with. This seems to be the position that Syriza is in.

      There is no way to break that log jam except to say one thing and do another.

      1. James Levy

        Been there, too! I have a good sense of hierarchy but a poor sense of power. My parents managed to be strict without being authoritarian. You could always argue with them, and they would always explain why they were doing what they were doing. Occasionally, you’d win one, but you always walked away knowing, if you were being honest to yourself, that your case had been heard and considered. This gave me both a respect for authority and a bad habit of expecting that all authorities operated like my parents did. It made me a better person but in a practical manner hasn’t served me all that well.

      2. Lambert Strether

        Hmm. Is your point that there’s no advantage to good communication?

        Adding: Greece had power. They had the power to impose capital controls and exit the Eurozone immediately (modulo difficulties of getting the drachma up and running). But they took what power they had off the table immediately. So, after that, like it or not, they were in negotiation mode, as supplicants, in a situation with significant power imbalance.

        1. Jackrabbit

          Yves has written about how they boxed themselves in with their campaign promises. Having done so, they couldn’t exercise their ‘power’ to leave right away.

          Then, in their ‘negotiations’ they met with absolute resistance from the Troika, who threatened to destroy Greek banks and forced a two-step negotiating process: tell us how you will service the crushing debt then we can talk about debt reduction. Naturally, this two-step approach is very advantageous to the creditors and is likely to leave Greece in a stranglehold.

          So they took a different path – the one suggested by sd:

          There is no way to break that log jam except to say one thing and do another.

          They became noncooperative as they explained their position again and again – hoping to find friends and allies. Greek defiance leads inexorably to the endgame where default is a real possibility.

          1. Yves Smith Post author

            The problem is Syriza made some huge missteps. As I said, they agreed to maintain primary surpluses, which is austerity.

            Moreover, the Greek government signed the Eurogroup memo in February. That CLEARLY reaffirmed the current memorandum, or structural reforms!

            The deal in the memo basically was, “We need you to give us your new reform package. You can rejigger the reforms as they don’t have a negative fiscal impact.” And Varoufakis said that they and the creditors agreed on 70% of the structural reforms, 30% they didn’t.

            Syriza kept objecting to both the negotiating process (negotiating with the Troika) and their “red line” structural reforms. I am not sure they could ever square the circle on labor “reforms,” but on pensions, per the terms of the Feb Eurogroup agreement, they could have kept them IF they had figured out what cuts elsewhere and revenue increases they needed to make elsewhere to pay for them. Readers in Greece are free to pipe up, but since the revenue increasing measures that were in the Syriza budget were already too optimistic (and I have to say that at least on some, the IMF had a point, there assumptions about how quickly some new measures could be rolled out looked way too optimistic).

            From the creditor perspective, Syriza was not just trying to explain itself. It was trying to retrade what it had agreed to in February.

            BTW the Greek banks were using the ELA before Syriza took office, in 2014 (9 billion euros in November, for instance) and they had been in a very big way in 2010 and 2012. The ELA is supposed to be only for temporary liquidity support. That is why it is subject to 2 week approvals. That’s not specific to Greece, it applies to any banks that use it.

            The real problem is the Greek banks have so many bad loans that they should have been declared insolvent. But I would guess that all of them were in the same bad shape. Plus I have not seen anything that indicates that there is an EU level version of the FDIC. So the Greek regulators would have had to take all the banks down, find foreign buyers, etc…..and that would have done wonders for the Greek economy.

            Greece was unduly optimistic all along. Early on, it looked like the Greek government would run out of money by March or April. And remember the negotiations were supposed to be done by the end of April per the Eurogroup memo. When asked “What about May?” Varoufakis blew that off like it would never happen. But the Syriza left wing has a much better grasp. Costas Lapasvitas (sp?) said in early March that Syriza’s plan A had failed (based on his reading of the Eurogroup memo, he read it as I did, reaffirming the “memorandum,” as in existing structural reforms) and they needed a Plan B. The left wing has much closer ties to harder leftists all over the world, and my sense is they have a better sense of how these struggles typically play out.

            Tsipras and Varoufakis thought they had enough of a primary surplus that all they needed was to get to a negotiation over the debt (and the creditors were willing to extend maturities and lower interest rates). But when they lost the primary surplus, things got strained internally on top of continuing to need to service the debt.

            The other bit is that having negotiations break down when the two parties say, “This isn’t going anywhere, we can’t agree” with no or not much rancor has value particularly if the parties are ever going to have future dealings, which is most assuredly the case with Greece and the creditors. In a default, they negotiate over restructuring the debt. Some people had proposed a “managed Grexit” if things get to that. The sour footing is going to make everything harder for both sides going forward, and that is almost certain to hurt the Greek people more than the creditors.

            1. Jackrabbit

              Just for the record, I too would’ve preferred the straightforward populist approach. But I have not “done the math”. Syriza almost certainly knows more than most of us about the choices it faces.

              And so I agree with much of what you write, Yves. Its just that there must be more going on that what what is visible. (The alternative is that they really are incompetent.) The strategy does have some merit, its just that Syriza has to be prepared for default (and possible Grexit). If there was never a deal to be had, then a default would’ve been inevitable – the failed effort to negotiate an acceptable ‘deal’ might serve to unite Greece – laying the political groundwork for a default/GRexit.

              Yes, they are retrading but that is because from their perspective everything is negotiable. And yes that would anger the other side. But that is the kind of thing that you do when you have no power.

              Their lack of power leads outsiders to think that Greece must fold – cut whatever deal is on offer. Instead, they have chosen to be defiant and to take this confrontation to the point of default.

              We can argue about whether Syriza has chosen the right strategy, but it seems to me that if Syriza capitulates/fails then future governments will be less likely to stand up to the Troika/TPTB. And that is a frightening prospect.

        2. James Levy

          No, good communications skills are wonderful, if you are dealing with family, friends, or reasonable, good-hearted people. What shocks me constantly is how few of those types of people are in any positions of power or responsibility. And in answer to a rhetorical question you posed upstream, negotiations should be about reaching amicable and fair conclusions, not about waving your dick about and demanding to fuck over the person you are negotiating with.

  7. docg

    In big-picture terms this whole thing isn’t really about Greece at all. It’s about the inevitable outcome of a system based on Ponzi economics. Greece is only the weak link in the chain. Even if by some miracle Greece can be saved from default, the next such crisis will arise soon after, in some other country.

    What counts in this world are resources, both human and natural and it’s high time for the world to return to a resource-based rather than a money-based economy.

    Once upon a time the Spanish believed all their problems could be solved by the accumulation of gold. But their gold was only as good as what could be purchased with it. Triillions of dollars have accumulated in the world of today, but it’s all bullshit. Greece is the real treasure, and nothing will change that. All the money is just dead weight.

  8. fosforos

    He wants Syriza to say ” We have a young electoral base and we are not connected to big businesses and established oligarchs. We draw our public support on the sense of fairness and redistribution.” Which is exactly why the institutions of modern state-monopoly capitalism, and especially the corrupt elites entrenched in every Eurogroup government (foremost among them the heirs of Franco and Salazar, and of Hjalmar Schacht if not of Hitler) look at Syriza and say (to each other) “voila l’ennemi.” No such government is to be tolerated as even a possibility, and once formed it is to be crushed as soon as possible. The verdict on Syriza’s negotiating strategy will not be given by irreconcilably hostile financial markets or by impossibly naive professors–it will be given by the peoples’ movements of Europe, starting with the Spanish elections this fall.

    1. Lambert Strether

      “The verdict on Syriza’s negotiating strategy will not be given by irreconcilably hostile financial markets or by impossibly naive professors–it will be given by the peoples’ movements of Europe, starting with the Spanish elections this fall.”

      Indeed! Making the PR element all the more crucial! Maybe Tsipras should have gotten serious and strung up an oligarch or two — for tax evasion. Which is what the EU wanted!

      Adding: The “verdict” will indeed be given by Mr Market if the lives of the Greek people become even harder. It’s romantic never to include the financial element; and in a financialized society/continent/union, it’s critical.

      1. generic

        Indeed! Making the PR element all the more crucial! Maybe Tsipras should have gotten serious and strung up an oligarch or two — for tax evasion. Which is what the EU wanted!

        No? The EU doesn’t care or they would have said something substantial over all the years since 2010 when they paid one tranche after the other while Greece handed over the rest of its economy to the Oligarchs while sitting on the tax evader list the French government handed them.

  9. Oldeguy

    Anyone who has had to deal with a Creditor knows that the FIRST thing that you must do is to fully acknowledge and accept the Debt.
    This allows you to “cross the table” and start talking in terms of how “WE” are now going
    to solve “OUR” Common Problem ( i.e. eventually getting the Banker’s money or at least a substantial portion thereof back to them ). Creditors become much more flexible
    when assured they are not dealing with a deadbeat.
    One of today’s links was a Financial Times article on nervous Greeks hoarding Euros outside of the Greek banks- not exactly a vote of confidence in their government’s negotiating skills.

    1. Cugel

      You are absolutely and categorically right about that! As an attorney who does consumer debt negotiations for a living the first thing I learned years ago was that no matter what outrageous interest charges, penalties, or even illegal fees and costs they larded on to my clients’ account, the only successful negotiating strategy was always to accept that it was all legitimate at the beginning, and then start talking about how they should take a percentage of the debt because of my client’s inability to pay. If you try to point out that any portion of the amount they claim is outrageous, impossible, or illegal, they get angry and refuse to negotiate.

      Anything else creates a “moral hazard” you see, in which the debtors might reject the notion that they ought to pay everything they owe, whether it’s legal, conscionable or even correctly calculated.

      1. Ignacio

        Regardless the debtor recognizes or not the legitimacy of all the debt, the creditors are ready to send the police to help with repossession. It’s their decission, nothing that you negotiate.

        1. Lambert Strether

          But they don’t send the cops to everyone. It’s like the security stuff that got leaked from the Office of Personnel Management. If you’ve got debt, they interview you. If you’ve got a workout agreement, you may pass. If not, you will never pass.

          I have to say, there seems to be a strain of thought on this thread that “negotiation” and “power imbalance” are mutually exclusive. In fact, they are two sides of the same coin. Even slaves “negotiated” in one of the worst power imbalances you can conceive of; look at the slave narratives from the antebellum South.

    2. RabidGandhi

      Again this assumes two things: 1. That the “institutions” are interested in reason; and 2. That their priority is getting the creditors repaid.

      Everything the IMF and friends have done both now in Greece and elsewhere in the past shows that their priority is not the creditors, but rather implementing structural changes until Greece has been turned into Haiti. This is why they repeatedly insist on having a comprehensive deal before talking haircuts.

      Furthermore, in conjunction with what fosforos said above, if they have another priority on their agenda it is to crush Syriza so that others won’t be infected by the “idea of taking matters into their own hands” to quote Mr Schlesinger.

      The creditors getting there money back, while a nice excuse to excite the masses in northern Europe, is way down on the Troika agenda.

      1. Jim

        I seriously doubt that anyone wants to turn Greece into Haiti but Greeks and Northern Europeans have fundamental incompatibilities. It’s not a question of right vs. wrong but the difference between the two is just too great to overcome. Greece should leave the Eurozone, repudiate the debt and arrange its affairs according to the nature of the Greek people.

        Greeks and Germans will get along much better when they have as little to do with each other as possible.

        1. John Jones

          The countries are occupied by humans Jim. They are no different from each other despite what any of them believe. Their countries have just faced different situations and stimuli in history and today and so have had different outcomes.

          If they didn’t want to turn it in to Haiti they never would of done what they did. They simply didn’t care of the outcome.

          1. Jim

            Greeks and Germans have little understanding of each other but it is silly to say that the Germans want to turn Greece into Haiti. They don’t understand the Greeks and no doubt wish that the Greeks had never joined the Eurozone.

            There’s no point in all this endless bickering and the two should simply go their separate ways. This marriage was a huge mistake.

            1. John Jones

              People who are racist don’t care what happens to Greece or to Greeks. It is common sense to realize when a country is not in a position to pay debt and you start destroying the country to find every euro for that debt that bad things happen to a country. I think Germans and Northern Europeans are fully aware of this. And The German and Northern Europeans political class knew full well what it was and is doing.

              Germans and Northern Europeans certainly don’t understand Greeks nor care to. What Greeks need to understand of Germans maybe you can tell me? There would be no bickering if there was no contempt and racism thrown Greece’s way to begin with.

              I have favored leaving the E.U and Euro from the beginning so that is fine by me.

              1. Jim

                No doubt the Big Bad Germans are completely to blame for all of Greece’s problems and no doubt the BBG’s are racists. So what? There is nothng the Greeks can do to change the BBG’s. The Greeks need to get out of the Eurozone, get rid of this debt and forge their own destiny.

      2. Yves Smith Post author

        Huh? The IMF has recognized the debt won’t be repaid and said there needed to be writedowns in 2012. They said so again bur Europe has 1/3 of the votes on the IMF board, and the US another 1/6, so the IMF can’t take that argument very far.

        Look, there is a lot you can say that is negative about the IMF that is fully justified, but this bit isn’t accurate.

        Plus all the creditors recognize that Greece needs further writedowns. That is expected and has been widely acknowledged. They expect to give Greece reductions in the economic cost of the debt, as they have already, by further extending maturities and lowering interest rates. The Greek debt to GDP ratio, due to previous extensions of maturities, is now 70% of GDP or so in real economic terms.

        This fight has been over structural reforms. The problem with Greece is NOT the debt levels. The headline #s are way higher than the real value and was set to be reduced further. It’s that the economy is in a depression and more fiscal spending is needed. You can’t even service debt if you are in a depression and deflation. Greece will be forever chasing its tail if it keeps having to make primary surpluses.

        But Greece already agreed to primary surpluses Varoufakis even OFFERED that early on! And they;ve agreed to insanely high numbers, 3.5% in 2018.

        What you are missing is Syriza already conceded on austerity.

        And I have also seen negotiators representing people who were very much the weak party in terms of power dynamics who nevertheless did vastly better in negotiations than they should have on any logical reading of pre-negotiatoin positions and power because the negotiator was highly skilled. For instance, in NYC, just about every large real estate developer in the early 1990s was seriously under water. They were ALL negotiating with the same banks because the same banks had done these loans. And it was all the same workout teams. And those guys are knuckle-brekers just like the IMF team. Yet a few got spectacularly favorable deals relative to the norm. I knew a couple of the negotiators and the difference was largely if not entirely due to them.

        You really are discounting that negotiations are human encounters and that human situations are far more malleable than they seem, even when stakes are high. By making the pensions a “red line in the negotiations, for instance, it’s become too visible an issue with the voters in the creditor countries, who think Greece has overly generous pensions, to work out a fudge by which Greece makes cosmetic cuts. The creditors even made a significant concession on pensions, that Greece could preserve many of their features if they made cuts elsewhere. If you read the five page memo, the creditors even said Greece needs a modern social welfare system, ie, to stop using early retirement (Greece has tons of early retirement) as a substitute for having a “modern” social safety nets. Germany has EXTREMELY generous unemployment insurance. Greece could have said, “OK, we’ll adopt the German model for unemployment insurance, it will take us time to build that, we need to grandfather the early retirement people we have on pensions now since they have been out of the workforce too long to be employable.” Then they could argue whether people below a certain age go off early retirement if unemployment gets low enough.Now would that have actually led to an acceptable solution? We don’t know. But that opportunity for a fudge was never explored.

        In other words, the creditors offered Greece a path for having what amounted to a negotiation to fudge on pensions. But because Syriza had made the pension a “red line” with voters, they put themselves in a position of not being able to shift much of what was being done via pensions into OTHER social safety net programs.

        Would this have worked? The pols on the creditor side need to tell their voters that Greece is “reforming” pensions. Greece could have tried a solution whereby they moved pension spending to other social safety nets, but having conceded on primary surpluses, they need to make cuts elsewhere. The Eurogroup actually said Greece COULD negotiate the reforms if they had no negative fiscal impact.

        Let me put this another way. The IMF and ECB are not willing to lower the boom on Greece on their own. They need political cover. The politicians, by contrast, don’t need a deal that works in the neoliberal sense of getting the money back. Greek debt is restructured every two years. The politicians need good optics. Was there an optical solution that would have worked? Syriza caved early on the most important issue, the basic of austerity v. no austerity, so everything else is moot and we will never know. That concession gave the IMF team the latitude they needed to say, “Great! All we want is for the numbers to work.” It was a fatal early concession, and worse, it was a FREE concession made outside a negotiation framework! You always ask for something back when you make a concession, you never just give a freebie.

        And the worst is by conceding on that issue when I suspect most Eurozone voters don’t appreciate what “primary surplus” means, so it didn’t give creditor country pols what they needed, which was “optics” points.

        1. RabidGandhi

          Yves, I don’t see how we’re saying two different things.

          I have said here and elsewhere that Syriza has caved on austerity and Greece will never grow with Varoufakis’ eternal surpluses (+privatisations!). Furthermore, my post above alone should show that I am no apologist for Syriza.

          My point is rather exactly what you said:

          This fight has been over structural reforms. The problem with Greece is NOT the debt levels.

          or as I had said

          their priority is not the creditors, but rather implementing structural changes

          This is why Oldeguy’s (and Monastiriotis’ and Syriza’s) solution of just getting the creditors to listen to reason is no solution at all. The troika’s real goal is to foist (even more) neoliberalism on Greece. I don’t see the difference in what you and I are saying.

          1. Tom

            I believe you have not read Yves piece. There were clear possibilities and they were all wasted. My believe as well. Incredible amateurs led the negotiations on the Greek side. Or should one say fake Socialists?

            1. RabidGandhi

              I did read Yves’ response and I do not see where she and I disagree. Above I said the exact same thing as you are saying now: that Syriza failed miserably in the negotiations.

              Are you guys sure you’re responding to my posts or someone else’s? If not, please quote what I said that is incorrect.

          2. Oldeguy

            In fairness, I don’t believe that I said my comment ( which stressed the importance of finding initial common ground with one’s counter party ) was a “solution”.
            I do believe it to be a necessary “door opener” however, and to neglect it shows ineptness.
            I’m not coming down on either side here.

        2. ennui

          But Greece already agreed to primary surpluses Varoufakis even OFFERED that early on! And they;ve agreed to insanely high numbers, 3.5% in 2018.

          I don’t understand how you can bring up this point while promoting the idea that the Greeks have negotiated badly.

          If Varoufakis had, rightly, rejected fiscal surpluses outright, would that not have scuttled the negotiation right at the start? On the other hand, given the state of Greek economy, there is no “reasonable” plan for fiscal surpluses. So, if the Greeks agree in principle to surpluses, any actual plan to achieve those surpluses can be dismissed as either naive or dishonest, which the Troika has essentially done in “negotiation.”

          Perhaps I misunderstood, but I had thought your point from the start was that there was little basis for negotiation between the Troika and the Greeks. I think the fiscal surplus issue is front and center for that view-point. Is there evidence that the Troika would have retracted the demand for surpluses? Is there any honest or reasonable response to that demand in negotiation? Further, it illustrates the shell game going on with respect to the broader issues. If the Greeks propose to adopt the German social welfare model with generous unemployment “insurance,” then this is no longer structural reform but becomes a fiscal issue as any reform will have to preserve the budget surpluses. Thus if the Greeks agree to structural reforms they create impossible fiscal issues, any response to which the Troika then dismisses as unrealistic.

          I don’t understand the point of arguing that the Greeks negotiated poorly or out of naivete if there was little ground for honest negotiation in the first place. If the issue were simply selling a relief plan to Northern European voters, the Troika is/was in the best position to advocate for “reasonable” proposals, not the Greeks. And, if the Troika were interested in “reasonable” proposals the politicians would not have promoted the pension issue as an internal political football. Surely the Greeks aren’t responsible for all the stories about lazy Greek pensioneers? The political apparatus in the EU has actively promoted contempt for the Greeks. While the Greeks may have addressed the larger European politics clumsily, as a US citizen I’ve had an education in how political promoted contempt for certain groups, seen as different from the rest of society, easily trumps solidarity on other issues…

          1. David

            “The political apparatus in the EU has actively promoted contempt for the Greeks.”

            Remember the early meetings that Varoufakis had with the Troika (Dijsselbloem?) Remember the attire? The body language? Not what many would expect from a finance minister who’s looking for a favor. Add to that the Paris-Match article about Varoufakis beautiful flat with a view of the Parthenon and one might understand where the contempt comes from.
            As far as “optics” points go, these were several own goals.

            1. generic

              Your telling me Greece invited the hate campaign in the German media because its ministers didn’t wear ties?

      3. samhill

        Haiti comes to my mind too, the most desperate country in the western hemisphere, the only one to have had a successful slave revolt rather than being forced to hang tough waiting for the slave masters to resolve it among themselves and move on to an other economic model. Unless one thinks Haitian blacks are inferior to any other peoples on the planet then there must be something else keeping them down that far and hard for 200 years.

        After the big quake, I was talking with a Caribbean friend who hoped that the sudden burst of good will and money would finally break the centuries of destitution. My comment was, nobody loves you when you’re down and out, people will ignore them even more once the shock of kids trapped under rubble wears off. They’ll be living on that pile of shit for the next 100 years, but moreover they’ll keep being punished for their original sin of having succeeded in defeating their slave masters. Money and power bastards apparently have a long, long memory. I too hope for Greece to show the way out, Grexit, unilaterally declare some very large part of the debt odious and walk away, and hopefully have a drachma tourist boom. Could happen, there’s just the problem of the money and power bastards with the long, long memory – make a model out of you through the ages if necessary.

        1. Sanctuary

          You’re more right than you know. Do you know the real reason why Haiti has been a basket case since its birth? The French forced them to pay reparations for having the audacity to overthrow slavemasters. Do you know how long that took? Until the middle of the 20th century. So from 1804 until the mid 1900’s, Haiti was forced to fork over precious income to their vile former slavemasters.

        2. fajensen

          According to the old testament, God punish for Seven generations, so if one is richer that God of course one will punish for longer?

  10. Ignacio

    If history show us any lesson is that those in the possession of power will try, not to keep it, but to make it larger. From the very beginning, no matter what Syriza would attempt to negotiate, the representatives of financial power would almost certainly do their best to make Syriza kneel no matter how reasonable their claims are. The Troika says what is the “medicine” and does not care about any sensible alternative.

    It does no matter if you label the troika as neoliberal or whatever you like. It is just about power and the execution of it.

    IMF economists have addressed the issue of austerity and they know VERY WELL what are the consequences of their medicine. This doesn`t stop the institution from inflicting the same medicine all over again in all circumstances, regardless the name and position of the indebted victim. It is just the execution of power. Negotiations? What negotiations? What I consider naive is to believe that there could be real negotiations.

    Varoufakis has said and written many times that a grexit is not on the table and this is for me the most puzzling attitude. Whether this is just public pose or his real position is not clear to me. That is the only negotiating tool that Siryza could use.

    1. paulmeli

      “Varoufakis has said and written many times that a grexit is not on the table and this is for me the most puzzling attitude.”

      This is puzzling to me too. I can only wonder if he is playing some nth-dimensional chess, laying groundwork for the next government that may well consider leaving the Euro (not until unemployment reaches 40% however).

      If not, then we are looking at Greece, Inc., an entertainment/vacation conglomerate populated with low-wage workers slaving for the company store. Tennessee Ernie Ford must be spinning in his grave.

    2. vteodorescu

      Well, Varoufakis, paradoxically, wants the best for Europe (whether such thing exists), and not the best for Greece. That was his declared position all along, and he thought he could convince the Eurocrats of the merits of his EIB, recycling the core surplus via periphery investment.

      And because (at least half of) Syriza respects him as an economist, they believe whatever he says about the dangers of Grexit etc. However, he unwittingly plays into the Troika’s hand, and he drags Greece into a hole by not considering Grexit.

      Funny world out there… :)

    3. Jackrabbit

      I think it is a pose. YV (and Syriza) want to make the case that default/GRexit are forced upon Greece. The resulting political turbulence in Europe raises the cost of Troika intransigence.

      1. Yves Smith Post author

        If that really is what they want, I am pretty confident that if they do default, in three months they will pay a vastly higher reputational price than they estimated, because Greece will suffer in a big way. It seems far more likely that they were convinced that the creditors for political reasons could not afford a default and would therefore make last-minute concessions. For instance, this will be a big black eye for the IMF.

        1. Sanctuary

          I just don’t believe Greece will suffer as much as you think. The same doomsday rhetoric was said of Iceland and Argentina, and there experience was not nearly as bad as everyone expected. While I know you’ll say that Greece’s mix of industry and exports means it will suffer more, I’m just saying the history of such defaults has usually been more mild than what was forecast.

        2. Jackrabbit

          Oh, I didn’t mean to imply that a default/GRexit is “what they want”. I think Greece does prefer to stay in the EZ.

          The biggest/only incentive for the Troika to reach an agreement that is workable is that default/GRexit has a cost. It is only natural for Greece to try to raise that cost (by arranging for the blame of a default/GRexit to fall on the Troika).

  11. hemeantwell

    I appreciate the detailed analysis the author provides, as far as it goes. But, his sketch of the second view is impatient and unfair, and requires greater specification.

    I’ll give it a shot. There are at least two views, building on roughly the same analysis but going in different directions politically and with corresponding stances to negotiations. I’ll call them the Lapavitsas view and the Varoufakis/Tsipras view. Both hinged on an analysis of Germany’s central and distorting position in the Eurozone, central by virtue of the size of its economy, and distorting in that Germany, beginning around 2000 with the formulation of the Agenda 2010 program, chose to gradually suppress unit labor costs in relation to productivity. In some sense this was the equivalent of the kind of national currency devaluation that a monetary union prevented, and in that respect it was an end run around the spirit of the union, at the get-go. Germany did this to improve its trade position and it worked, cheapening its exports and also limiting demand for imports. It built up a surplus which its banks freely loaned out, often recklessly.

    Both Lapavitsas and Varoufakis/Tsipras argue that, for the Eurozone to work, the Germans need to increase their wages, which would have the effect of diminishing their trade advantage and increasing demand for products of other countries. They both see the treatment Greece is getting as significantly, but not entirely representing a steadfast denial of this distortion, and a punitive focus on its effects. Lapavitsas, however, seems to have recognized that this is impossible politically, the established capital-labor coalition in Germany is simply too dug in, and they are the dog wagging the tail of the Troika. Therefore, in 2014, before Syriza came to power he was arguing that the responsible, sober approach of the left would be to prepare the Greek people for a Grexit, at the same time acknowledging that it would require them to accept terrible costs. Varoufakis/Tsipras, on the other hand, have hoped that they could get the Troika to not only forgive debt but also to engage in something like a Marshall plan for the periphery. At this point, it looks like Lapavitsas is right.

    It’s worth noting that the core criticism of Germany, that they are ‘wage-dumping’ is hardly only a left-wing complaint. In a Joshua Rahtz’ review of a 2014 book by Carl Fratzscher, The Germany Illusion, a similar analysis and remedy appears, despite the fact that Fratscher is a peak neoliberal, and his book was very well-received in Germany. (Fratzscher would prefer to increase domestic consumption through investment in infrastructure. The reception was good because, of course, the remedy can be thought of as irrelevant to Greece’s plight.)

    As he understands it, the problem indicated by Germany’s current account surplus is not that Germany exports too much, but rather that it imports too little. Strengthening the European Union, with Germany as its economic motor, is the key to a regulated and sustainable capitalism. The FRG would continue as an export locomotive for the continent as a whole, but would also function as a consumer of last resort, by ploughing back its export-generated profits into domestic investment, therefore generating demand.

    1. hemeantwell

      This is why Oldeguy’s (and Monastiriotis’ and Syriza’s) solution of just getting the creditors to listen to reason is no solution at all. The troika’s real goal is to foist (even more) neoliberalism on Greece

      I don’t think it’s just a quibble to say that, in light of the wage-dumping thesis, it could be better stated as “foisting a neoliberal emphasis on debt in a way that ignores the German sources of indebtedness.”

      1. Lambert Strether

        Not the “German” sources of indebtedness. The German banks sources of indebtedness (although, to be fair, we sold them a fair amount from our own Big Shitpile before the 2008 crisis).

        Speaking once again of PR, the banks, and especially the German banks, must be laughing themselves silly at how they got away clean on this. “Know your enemy and know yourself….”

        1. hemeantwell

          ack. good catch. It’s so horribly easy to slip into attributions of collective responsibility, especially when you don’t have a clear map of the interests of various players. That said, as I’ve read in this area the complicity of the Social Democrats in these policies is disgusting. My previous passing understanding of their sign-on to wage restraint was entirely geared to their domestic considerations. I hadn’t bothered to consider how the pact burdened their class compatriots elsewhere in the EMU. Another way in which this situation resonates with 1914, when the SPD supported war credits for the Kaiser.

      2. RabidGandhi

        I thoroughly agree about German wage dumping, but you are taking my words out of context to make a separate point.

        My point above was about Greece’s payments on its external debt. How and when debt payments are made is one thing; another is making cuts to pensions, privatising state assets, flexibilising labour, the usual neoliberal laundry list. My point is that what the troika really cares about is the latter.

        Take Argentina (again). By kicking out the IMF and refusing its diktats on govt spending, privatisations and labour, we are now in a position where we could pay back any debts easily, because the economy can now grow. That is the reason why the IMF is seizing the moment now to make these changes in Greece. Paying back the debt is secondary or tertiary to its real goals.

        1. hemeantwell

          I see your point. We’re talking about an unfolding neoliberal program. They whack away at German social spending and wages, which generates a crisis elsewhere, and then they apply the same methods to address that crisis. There’s a shift from 1. addressing a deteriorating trade position in Germany to 2. saving the German banks that were sloppily disposing of the surplus their ‘solution’ to the trade problem generated. I wonder if you could argue that the neoliberal approach in 1. blocked them from what Fratzscher is now belatedly proposing, using the surplus to invest domestically. You get the state out of the way, more or less, and that tends to undercut investment in infrastructure, which doesn’t pay out as well as real estate speculation in Spain.

    2. Tom

      All very well. But who guarantees that the money that Germans earn more doesn´t flow to China instead of Greece?

    3. Jackrabbit

      Yes, many have said German policies and surpluses that are the (real) problem for Europe.

      Note: this dovetails into the ongoing NC discussion of competitive vs. cooperative societies.

      1. David

        Some might say that the real problem is economic union without political union. German solutions for german problems. Everyone else, meh.

    4. Calgacus

      A couple of points. I still think many misunderstand Syriza’s strategy. My opinion is that Greece should have, is/will veer in the Lapavitsasish direction. But Lapavitsas, unless he is playing a role coordinated with Tsipras & Varoufakis does not seem to understand the Varoufakis / Syriza strategy. He, like most here, accuse the “Good Euro” team of naivete. Varoufakis in 2014 clearly put the probability of failure of the negotiations, of Grexit as > 50% – so how can he be called naive? For this and other insights, see what I consider to be the best reading to understand YV’s & Greece’s moves: Greece’s duty to negotiate with Berlin

      hemeantwell:Therefore, in 2014, before Syriza came to power he [Lapavitsas] was arguing that the responsible, sober approach of the left would be to prepare the Greek people for a Grexit, at the same time acknowledging that it would require them to accept terrible costs.

      But Lapavitsas – correctly IMHO, and distinct from Varoufakis & Naked Capitalism does not acknowledge that Grexit would entail terrible costs!

      Greece: Phase Two

      This isn’t as difficult as some people like to make out. It will not be a pleasant period, but that’s not sufficient. It’s not enough in and of itself to say that exit should not be countenanced. In the fullness of time, the cost of a few months of difficulty amounts to nothing. And if there is some planning, that cost can be significantly reduced.

      He is mainly speaking of a negotiated Grexit here, but what he says applies to forced Grexit too, which he discusses later, not suggesting it is drastically worse.

      1. Yves Smith Post author

        No, we have regularly argued with readers that a Grexit is a terrible idea and we have argued with readers who have advocated it, including ones that have cited Lapavitsas, since we otherwise agree with a lot of his analysis.

        A default does not mean a Grexit. We have said consistently that a default in the Eurozone is the least bad of Greece’s bad options. But that was also before all these months of Tsipras savaging the creditors, including poking Merkel (in the Le Monde op ed) and Juncker (in his speech last week) in the eye.

        If Greece had imposed capital controls in January, they could have refused to accept the bailout extension conditions in the Eurogroup memo in February, which were negotiate structural reforms first, debt later. Hindsight is always 20/20, but if their only plan was a game of chicken, and that is what has come to pass, they were better served to have played it then. They should have held the line on integrated negotiations. They’ve spent months trying to win that back (notice they submitted a debt proposal this week, only to have the creditors say, “That’s not on the table”). You can’t reverse positions on things you’ve conceded except at very high cost, and Greece had nothing of sufficient value to “trade” for that point.

        1. Cassiodorus

          I see. So Greece having sovereign control over its currency is a bad idea. But the Euro is a bad idea, too.

          Are you deliberately making it hard for people to agree with you?

          1. Yves Smith Post author

            Your ire is uncalled for. A Grexit will be a disaster for Greece. Everyone is treating it as tantamount to a simple currency depreciation when the operational issues are far more significant than most people understand, not just of getting the payments system working but of handling trade finance (an IMF default makes Greece ineligible for most facilities, and the difficulties of getting it are increased any more with a new, volatile, not widely accepted currency). I have some posts next week on this issue, so we are not talking generalities here.

            There are such things as lose/lose situations. We’ve consistently made it clear that a default in the Eurozone is far less damaging to the Greek economy and its people than a Grexit.

            1. Cassiodorus

              And I am indeed curious as to how you expect Greece to deal with its economic problems without any control over its national currency.

              1. Yves Smith Post author

                Benefits have to be weighed against costs. If the cost of what it takes to get to some hoped for economic benefit is to do serious damage to the social order and people’s lives to get there, are you really ahead? There are such things as being faced with impossibly bad choices. I have a colleague who is doing granular work on what it would take operationally to do a Grexit. I hope we’ll have it up sometime next week. Everyone analogizes this to a currency depreciation, when it is 2-4 orders of magnitude more daunting and disruptive, and Greek governments in general (and this one in particular) are very weak in operational skills.

                1. Cassiodorus

                  When you face “impossibly bad choices,” _at some point_ you have to make the choice which will allow you to choose something better. Calculate all you like — but the argument that “A Grexit would be bad for Greece,” repeated as often as seems necessary, and as meaningful in the short term as it may be, doesn’t really settle the issue, because letting the EU predators control Greece’s currency is _indefinitely_ bad for Greece. Is the short term the whole of reality?

                  The European elites, like the rest of the transnational capitalist class, are a bunch whose main interest at this point is to Hoover up the rest of the big wealth reserves in a global economy which has been slowing down for four decades now and which has three more good decades at best, and then spirit their gains off to New Zealand or some other such nice place while the rest of us cope with runaway climate change. Why would anyone trust such people unless they weren’t being well-paid to do so? “Default within the Eurozone” might be the best of a bad situation now, but not indefinitely, and perhaps not for long.

                  1. Yves Smith Post author

                    The people who are making these decisions, like Lagarde, the program team at the IMF, the directors of the ECB like Jens Weidmann at the Bundesbank, are not members of the global 0.1% with homes in remote locales. They are true believers in a bad ideology. That makes them even more dangerous.

                    We have a post on what a Grexit entails operationally coming up shortly. Suffice it to say it demonstrates why Varoufakis has rejected this option.

                    1. skippy

                      Sorry to chime in, but, yeah… some have a bad fixation on systems architecture and not the wonky metaphysics trashing the fixtures and furniture.

                      Lagarde’s missive on tele wrt diaper sales being monopolized by chemist shops and not allowing the “Free Market” to do its shtick was about as camp as it gets. I thought she might stroll over to a felt visual aid begin a Sunday school Free Market fairy tale reading.

                      Skippy…. why are the far sides so complicit in the suffering meme…

      2. vteodorescu

        Well, yes, I also think that the New Drachma is not going to be as terrible as people make out. Especially when compared with alternative 1: agreement now, get a paltry 7 billion, and repeat the same scenario in one year’s time. What will they promise then? 7% primary surplus? And alternative 2: don’t get agreement, stay in the euro, don’t get money, have no hope of ever getting better.

        Bad and very bad situations can be endured.if there is hope. The alternatives to grexit offer the same bad conditions, without hope. My money is on grexit.

  12. Jackrabbit

    Yves, I don’t agree with your statement that Syriza has agreed to austerity. The Greeks want a debt restructuring and new investment to get their economy going. They are willing to pay as much as they can (reflected in the high primary surplus) in return for an end to austerity and the bailout farce. Given the ameliorating effect from other aspects of their program, a focus on the primary surplus number is misleading.

    H O P

    1. Yves Smith Post author

      No, Syriza has agreed to austerity. You are buying their PR and not looking at their actions.

      Varoufakis early on said Greece would run primary surpluses forever. A primary surplus is austerity. It’s spending less than you take in in tax receipts. It’s contractionary, and deeply so in a deeply depressed economy. All of his grand talk about having the Greek economy grow and prosper was vitiated by that statement. And as an economist, he can’t pretend he didn’t know what he was saying.

      See this for more details:

    2. Sibiriak

      Jackrabbit: Yves, I don’t agree with your statement that Syriza has agreed to austerity.

      Semantics. Running a surplus is *part* of the full neoliberal “austerity” program–but only a part.
      Syriza has accepted that part of austerity (still disagreeing on numbers), while fighting other parts.

      So you could say:

      1) “Syriza has accepted austerity (because they have accepted an important part of it)


      2) “Syriza has not accepted austerity (because the have rejected important parts of it).


      3) “Syriza has accepted a kind of austerity lite”

      It’s all a matter of what you emphasize.

      1. Yves Smith Post author

        Syriza has substantially agreed on the numbers too. They offered in their 47 page proposal to achieve a primary surplus of 3.5% of GDP by 2018, which is a painfully high level, and is identical to what the creditors wanted. All they are arguing over is how quickly to get there, and even then they are not that far apart. Syriza proposed 0.6% for 2015 v. 1% from the creditors last week, and IIRC, in Syriza’s revised offer this week, they increase that to .75% of GDP

  13. voxhumana

    I am constantly amazed at the confusion generated through the need to be “right” by those whose opinions don’t matter.

  14. Jackrabbit

    I was VERY critical of YV for agreeing to the BS terminology (“the institutions”) AND not talking of ordinary Greeks during his famous news conference in February.

    I slowly came around to the point of view that the Greeks were not caving in but pursuing a strategy of persuasion and non-cooperativeness. They were forced into this “negotiating stance” (if you will) due to the Troika’s forcing a two-step negotiation (tell us how you will service the debt, then we can talk about debt restructuring) via holding Greek banks hostage. The Greek approach is NOT populist and almost guarantees a standoff that takes the matter to default and beyond.

    I also don’t buy the ‘Syriza incompetence’ meme because it is clear that they have been preparing for this standoff for at least a year. There is no doubt in my mind that they have considered a more populist approach but I’d guess that this approach (which tries to work with TPTB) is designed to either:

    1) cause the Troika and all of Europe to understand the futility of the bailouts and to work with Greece for the good of all; or

    2) unite the Greeks due to the futility of working with the Troika (a unity that is necessary before taking the difficult road of default/GRexit).

    H O P

      1. Jackrabbit

        Thanks for the reply Yves, but it don’t you think that the Greeks were forced to accept the two-step approach?

          1. Jackrabbit

            In February they had only been in office a matter of weeks. I’d guess that they felt that they had not yet had a chance to make their case to Europeans and Greeks. Especially since establishing the heartless intransigence of the Troika is probably important for:

            1) raising the stakes (to hopefully prod the Troika into a more lenient posture); and/or

            2) uniting Greeks prior to a default/GRexit.

          2. Tom

            I have been following this sorry tale for a long time. It is hard to reconcile all the statements and counterstatements arguments and counterarguments. Yves stand makes the most sense to me. It tallies with the insane way the negotiations were conducted. Just one thing I might add. It is my feeling – although I cannot prove it – that Syriza made these crazy and most important concessions right at the start because they a. didn´t believe that come 2018 they would really need to fulfill them and b. they thought by making these (in their eyes) important concessions from there it would be easy sailing.
            They had absolutely no grasp of reality. Sorry, but that is what those upper – and middle class bourgeois leftists mostly are like. They never work anywhere else but in the artificial environments of unis and government service and start to believe in their construction of reality. I am not surprised that the hard left has a much better grap of reality than these fashionable types. There were hard choices to be made but Syriza simply shirked them.

    1. fajensen

      Unfortunately, Syriza *are* incompetent.

      I have Greek colleagues and we hear stories of *everything* grinding to a halt in Greece. In a normal country, the public administration can run things just fine without the government – if Belgium had been operating like Greece, the whole country would have been reduced to rubble by now.

      They have made no “standoff” and no preparations whatsoever. Just kicking the can. They had options, they pissed them away. That thing about a “red line” with the voters – well, everybody knows that politicians lie & lie & lie some more, it would be easy to get out from under that one.

      They have not even managed to “out” some of the tax frauds and their bank connections – let alone prosecuted anyone – which would have gotten the government some respect amongst other EU-citizens and maybe set a dangerous precedence. Prosecution of tax frauds and pushing for damages with their enablers within the finance industry, would give “the elites” much more immediate troubles than imposing the Neoliberal religion on people. The pressure on Greece would be diluted by the need for moving assets to Dubai stat.

  15. Mr. G

    Did this dialogue really happen? Everything I hear and am connecting with says “no”.
    The core issue is. Who will run Europe? The left, the center or the right? Greece is a proxy for this battle.

  16. Wobblie

    austerity is about dismantling the public sector state.

    The author seems a little naive. This is not about negotiations to help Greece.

    1. Yves Smith Post author

      It is hitting the point where all the governments involved are going to take losses on Greece. That’s costly from a political perspective. They do have incentives to minimize the damage.

      1. Oldeguy

        Which means, of course, that the taxpayers “of all the governments involved are going to take losses on Greece”.
        I strongly suspect that you are right about that and the amount of ill will and resentment generated will be huge. What we’re seeing here is a test case for how well political democracy can deal with economic stress in an era of eroded sense of community.
        A similar situation is unfolding much closer to home.
        Due to decades of “borrowing” from State Retirement funds to balance the annual budgets ( kind of ) while ducking needed but politically poisonous tax increases, the State of Illinois is close to becoming the Greece of the U.S.
        There have been repeated downgrades of State Bond rating and City of Chicago Bonds have attained Junk status.
        The political response thus far has been dismal: the State had the incredible good fortune of having that rarest of all birds: an honest, competent, decent Illinois Governor in Pat Quinn who actually managed to put together the beginnings of a program to deal with the mess. Since the program included a modest State Income Tax hike ( to the level of ultra conservative neighboring Indiana ) a grateful electorate booted him out, electing a Gazillionaire Republican businessman whose platform was as vague as Nixon’s Secret Plan to End The War. We have now learned that the Great Lakes can now boast of two Gov. Walkers- one in Madison Wisc., one in Springfield Ill.
        The Illinois electorate are not innocent victims here and I suspect neither are the Greeks. If they cannot manage their own collective lives ( the premise of democracy is that they can ) then Somebody or Something else will do it for them, whether they like it or not.

  17. Russell Scott Day/Transcendia

    4 months to be in office is not long.

    Essentially what led to the situation were flaws in the EU banking system exacerbated by entrenched corruptions.

    Future Tax Credits are inferior to the Insurodollar, for now all the people must have good reasons to love their nation and work with all the money they all really have to keep their nation from being the big losers in the economic warfare of the day.

    The EU is not thinking well at all when there is the prospect of Russian money moving in to take more control.

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