How a Great Power Falls Apart
Decline Is Invisible From the Inside
Since the January 2015 election of a coalition government made up of the left-wing SYRIZA party and the right-wing ANEL (Independent Greeks) party, Greece has been in constant negotiation with the EU about reformulating the Greek bailout. Although Athens has often (but not always) denied it, any new deal will come with serious restrictions on the Greek people.
The negotiations are secret, but there are plenty of leaks on both sides. They traffic not in facts but in the impressions of people participating in, or close to, the talks. It is clear that the Greek government is relentlessly optimistic—it has been expecting an agreement “any day now” ever since the removal of Yanis Varoufakis, the Greek finance minister, from the chief negotiating position last month—whereas the rest of the EU cannot see striking a deal anytime soon.
In other words, the leaks and conflicting daily statements from participants offer little clarity about the real state of affairs. Beneath them, though, lie structural issues that imply the EU has the upper hand. In the negotiating game, the deck is stacked in the EU’s favor. In the Greek domestic game, it favors Greek Prime Minister Alexis Tsipras, who wants a compromise.
In any negotiation, the two parties have “reservation prices” (that is, the point at which a negotiator would rather forgo any agreement). Reservation prices depend on how beneficial the deal on the table is and how disruptive the alternative would be. Understanding that Greece represents only three percent of the EU’s GDP, an outside observer might believe that the EU’s reservation price is quite low—it would be willing to walk away from the talks much sooner than the Greeks. In turn, any agreement will be weighted this way. Yet there are some additional factors—one institutional and one substantive—that are important to note.
The EU’s institutional advantage is that decisions (in the Eurogroup and in the council) are made unanimously, which implies that it is very difficult for any proposal to be accepted. For example, the Treaty of Lisbon, which is the functional equivalent of an EU constitution, took a decade to be negotiated and adopted. In the negotiations game, unanimous decision-making works against the Greek government, given the difficulty of getting any of its proposals accepted.
The Greek government does not seem to understand this institutional feature of the EU. The government maintains that its position expresses the will of the Greek people and that it is thus entitled to impose its preferences (“tear up the memorandums”) on the EU or demand that the EU make at least 30 percent of the concessions to reach a compromise. Tsipras has repeatedly asked for private meetings with European leaders (German Chancellor Angela Merkel, European Commission President Jean-Claude Juncker, and European Central Bank [ECB] President Mario Draghi) to talk about a political solution. Yet time and time again, he is pushed back politely with the argument that the decision will be made by institutions—namely, the Eurogroup, or the “troika” of the International Monetary Fund (IMF), the European Commission, and the ECB.
The IMF and the ECB, meanwhile, have their own rules to play by, which precludes certain concessions. For example, the IMF cannot finance any debt that is not serviceable, and Tsipras’ requests to Washington to intervene in the negotiations in favor of the Greek government are unlikely to lead to a positive evaluation of Greek debt.
The EU’s substantive advantage is that it has control over liquidity. In all bargaining situations, the most impatient player has to make the most concessions. The Greek government points out that a failure in negotiations would be detrimental to the EU as well as to Greece. That might be true, but not over the same time frame.
Time extracts a price during negotiation games, and an early agreement is better than a later one. In this particular case, delays diminish Greek liquidity: Greece is running out of cash for payments on salaries, pensions, and debts to the IMF. Several government officials have announced that they may decide to pay salaries over creditors, which has resulted in capital flight from Greece. Delays in the talks are also hurting the tourism industry, Greece’s major source of income. Foreign travel agencies are asking for contracts in which the Greek side assumes the risks of a change in currency (in case of Grexit) or an increase in the value-added tax (one of the major negotiation issues for the payment of the debt). Finally, delays have hurt the Greek government’s standing with the public. Although Greek popular support for SYRIZA has remained more or less stable since the election, government policies have recently lost backing in the polls.
Although SYRIZA leadership seems to be aiming for a compromise, some 40 percent of the members of the party’s central committee recently voted for a draft for decision that promoted exit from the EU.Perhaps understanding that the negotiating deck is stacked in the EU’s favor, the leadership of SYRIZA has stopped promising to tear up the old debt memorandums and started to talk of a mutually beneficial compromise. Some are even starting to speak about a “painful compromise” and a postponement of key portions of SYRIZA’s election platform. Whether there will be a compromise or not—whether Merkel will try to intervene at the last minute or not, as some expect her to do—the outcome of the negotiations will be a far cry from what SYRIZA promised in January.
Although SYRIZA leadership seems to be aiming for a compromise, some 40 percent of the members of the party’s central committee recently voted for a draft for decision that promoted exit from the EU.
If there is an agreement in Brussels, it will still have to be approved by the Greek parliament. To understand coming events (the current extension agreement expires at the end of June, and Greek cash could run out before that deadline), it is worth examining an important feature of Greek institutions: any elections held within 18 months of a previous vote take place under a list voting system. This means that party headquarters determine the sequence of candidates on the ballot. Put simply, party leaders decide who gets elected.
This particular provision gives exceptional power to the Greek prime minister, power much greater than that granted to counterparts in any other country in the world. Almost all prime ministers of countries with parliamentary systems have the power to call for a vote of confidence, forcing members of parliament to decide not only whether they are in favor of a particular bill but also whether they are willing to defend their choice by standing for a new election (the result of a negative vote). This is a serious weapon in the hands of a prime minister. Yet the Greek prime minister has an even bigger gun: not only can he threaten to call an election, he can control the future members of parliament (given that he can threaten not to place dissidents on the party’s lists). Many party officials, including the ones closest to Tsipras, have claimed that they will whip the vote and that if the government loses the vote, there should be an election.
Working backward, it is easy to see the effects of these rules on the negotiation game.
In all polls, SYRIZA is at least 20 points ahead of the second party, New Democracy (ND). The reason is that the head of ND is the previous prime minister, who wants to have his own policies recognized and approved by the Greek people. As long as there is no change in the leadership of ND or the creation of a wide coalition of all other parties, Tsipras (assuming he brings negotiations to a conclusion) will be the winner. Out of the dissidents of his party, very few will actually oppose him, and most of them will not have the name recognition to be elected in opposition to him.
So here are the strategic calculations of the actors: Tsipras is the median voter among the left wing of his party and of the Greek people. The left wing of his party has become louder and stronger over the last four months. The Greek people have become more confused and ambivalent. Any agreement that Tsipras signs with the EU and brings in front of the parliament is sure to be approved. (Even if he loses some of the 163 parliamentarians that support his government, he will gain many more from the current pro-EU opposition.) The question is, does he want to strike a deal that will violate all (or most) of the principles he has advocated and the redlines he has drawn?
Assuming he is undecided or does not want to bring such a deal in front of his party, he is likely to get one more chance: if he dramatizes the situation—defaults on one of the debt payments and restricts currency movements—the public (projecting the current trend of polls) will likely grow more decisively in favor of staying in the eurozone. Such an outcome will tilt the balance of power more in his favor within SYRIZA. This, of course, is a risky gamble because predictions under such unprecedented circumstances cannot be precise. But more to the point, it is a significantly more costly solution for the Greek people, who will suffer as the economy freezes.
As of early June, it looks as if any compromise that Greece negotiates with the EU will indeed violate SYRIZA’s redlines. It will come to parliament and will be approved without the need for elections (elections may become necessary for the adoption of a new package). There is a possibility that Merkel will step in to sweeten the deal (after all, she cares about having a positive outcome, although she has to pass it in her own parliament) or that some proportion of SYRIZA parliamentarians (a small one may be enough) will vote down the deal (after all, they may be more ideological than ordinary members of parliament from other Greek or EU parties). But neither is very likely.