The too sane negotiator

In the debt negotiations, it might have paid Greece to be less reasonable.

Like you, I’ve been watching at a safe distance the bitter wrangles and brinkmanship in Europe over Greek debt. It is horribly reminiscent of August 1914. Could the disaster have been avoided?

Europe’s financial establishment has been complaining that their Greek negotiators are childishly obstinate. Why don’t they just give in to the astonishingly detailed neocolonial prescriptions they have been mailed?

You don’t win a negotiation by being conciliatory. Possibly, the Greeks have been rather too sane. A proper mad negotiator would have threatened not just partial but complete default if forced out of the euro. What would Greece have to lose? Better wipe the slate of odious governmental debt clean, which would reassure new private lenders (cf the Soviet Union in the 1920s, Argentina). To protect German taxpayers, the correct strategy for Berlin and Brussels at this point would then be surrender on the terms already offered. This gets most of what they want and already more than Greek voters can stand.

Either you have the institution of debt bondage or that of bankruptcy. International law does not provide for the former. The attempt by France to enforce Germany’s Versailles reparations in 1923 by occupying the Rhineland did not turn out well, even from the narrow viewpoint of French taxpayers.

It’s true that Grexit would have costs for Greece too. In the short run it would be even worse for Greeks than the austerity hair-shirt, though it offers better prospects for growth a few years ahead. The non-cooperative bad payoffs still look asymmetric. However, my speculation is unrealistic. Tsipras campaigned on a promise to keep Greece in the euro, not to threaten to take it out. So Grexit is up to Germany, not Greece.

Author: James Wimberley

James Wimberley (b. 1946, an Englishman raised in the Channel Islands. three adult children) is a former career international bureaucrat with the Council of Europe in Strasbourg. His main achievements there were the Lisbon Convention on recognition of qualifications and the Kosovo law on school education. He retired in 2006 to a little white house in Andalucia, His first wife Patricia Morris died in 2009 after a long illness. He remarried in 2011. to the former Brazilian TV actress Lu Mendonça. The cat overlords are now three. I suppose I've been invited to join real scholars on the list because my skills, acquired in a decade of technical assistance work in eastern Europe, include being able to ask faux-naïf questions like the exotic Persians and Chinese of eighteenth-century philosophical fiction. So I'm quite comfortable in the role of country-cousin blogger with a European perspective. The other specialised skill I learnt was making toasts with a moral in the course of drunken Caucasian banquets. I'm open to expenses-paid offers to retell Noah the great Armenian and Columbus, the orange, and university reform in Georgia. James Wimberley's occasional publications on the web

4 thoughts on “The too sane negotiator”

  1. I'm certainly no expert in finance, or international finance. But the IMF et al. do seem like bullies. There ought to be insurance for this, built in, somewhere. Or a better bankruptcy system. Seems like the Greeks are in debt bondage already. What else can we call this?

    1. No expert I neither. Musing more on this, the analogy might be that if I went bankrupt, my debtors would instal a committee of their representatives in my kitchen claiming the right to review my household budget and weekly grocery shopping cart. What creditors are entitled to is getting as much as practicable of their money back. In the Greek case, this means setting the primary budget deficit. The creditors will never get all the money back, and there is no point in driving the economy off a cliff in hopes; there is some optimum rate for debt recovery in the medium term. Apparently this has already been agreed – 1% of GDP next year. Within that budget constraint, what business is it of the creditors at what rate pensions are paid, the VAT rate on electricity, and all the rest of the 5-page list?

      1. That is pretty much how the US Bankruptcy system works.

        If your income is above-median, you have to spend all your income above necessary expenses on debt repayment for 5 years as part of declaring bankruptcy–and "necessary expenses" are defined quite low. (For example, in my city, the "rent and utilities" would get you a small apartment in a poor neighborhood, and barely enough heat to keep it comfortable in the winter.)

        They don't review what you spend it on, but the limits on overall spending are quite tight.

        1. That does seem a bit harsh — was it basically the same before the 2005 changes? No wonder everyone incorporates. Of course there should be a happy medium — but people in the US take the bk system for granted and don't realize how important it is to helping people take risks. We need those people.

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