Agony in Athens

In a recent article for Foreign Affairs, I wrote that, in the negotiations over the Greek bailout, Greek Prime Minister Alexis Tsipras would likely sign the EU’s proposed debt agreement and the Greek Parliament would ratify it. The reason? The unanimity of decision-making within the EU and the ECB’s control over the liquidity of Greek banks gave the EU the upper hand.

As I write this postscript, I do not know whether my predictions were accurate. There is still great uncertainty about whether Greece will accept or reject the current EU offer (which may be slightly modified) or instead prolong its agony, and the world’s, by getting one more extension.

What is obvious is that these negotiations have lasted way too long. Understanding the reasons the talks have been so protracted may help the EU avoid similar situations in the future.

There are two possibilities: the first is that one of the two sides does not want a deal. The second is that at least one of the two actors is unaware of the exact preferences or capacities of the other—the problem of incomplete information. The first possibility seems implausible. It is true that certain actors in the EU and in Greece want to part ways, but they do not constitute a majority or have a predominant position within either bargaining team. The drama of the negotiations, therefore, must come down to incomplete information: messages were not effectively transmitted in the negotiating process. The question now is whether the problem has been the people involved or the structure of the negotiations.

GREEK STRATEGY

The Greek “strategy” is a mess of random and contradictory messages from Greek government officials. Athens’ fundamental position was that it had a recent popular mandate to demand the end of austerity and the reduction of the debt burden. EU officials judged the request as excessive, and were particularly incensed by the tone of Yanis Varoufakis, Greece’s finance minister, who often appeared to be trying to educate his European counterparts about economic best practices. EU officials treated his arguments as those of a death row inmate who claims to be against the death penalty: not credible and resulting from conflict of interest. Eventually, Greece withdrew him from the negotiations (but did not replace him as minister of finance).

After that round, Greece introduced a new tactic, in which it argued that it had no money to repay IMF loans. (Varoufakis’ statement to IMF Managing Director Christine Lagarde was that Greece will pay its debt “perpetually.”) In June, for the first time, Greece delayed a series of payments until the end of the month. Athens did itself a disservice by publically admitting that the request was a matter of strategy, not necessity, which further diminished its negotiators’ credibility.

The Greeks’ final gambit—the effort to develop alternative agreements and threaten the EU with the geopolitical consequences of a Grexit—fell flat. Among other things, the Greek defense minister warned that if the EU didn’t support Greece, Greece would not be able to defend southern Europe from hordes of jihadists; that if Europeans continued to take a hard line on Greeks, Greeks would turn the negotiations into an explosion (the word used was “Kougi,” from a historical event in which monks blew up their monastery rather than submit to Turkish rule); and that if Greece lost the EU as a patron it would simply turn to China or Russia. To back that threat up, Tsipras has spoken out against the European line on the Ukraine and visited Russia “in search of new safe havens.”

The Greek strategy and tactics pushed all 18 other finance ministers (including Cyprus’) to reject the Greek positions.

As a result of its jumbled strategy, Greece was unable to win or communicate with allies, lost its credibility, and raised questions about its loyalty to Europe. In a sense, the country’s failing just reflected the contradictory preferences of the Greek people: to both stay in the euro and get rid of austerity.

EUROPEAN WALL

The Greek strategy and tactics pushed all 18 other finance ministers (including Cyprus’) to reject the Greek positions. It is possible that things would have been different if Greece had moderated its demands. Instead of lecturing about economic policy, for example, the Greek negotiators could have argued that pensions were such a big percent of Greece’s GDP because the country’s GDP had shrunk during the economic crisis. Or they could have pointed out that the IMF, because of its mistaken assumptions about economic multipliers, shared responsibility for Greece’s recession.

Had Greece played nice, it might have won more allies. But even then, it is unlikely that the EU would have voted to change the terms of its bailout loans, since such a change requires a unanimous vote. In the Greek case, even were the EU to have changed its policies, the IMF and the ECB (the two other lenders) would have to agree. These organizations have very strict regulations, and negotiators have clear limits on the actions they can take. The electoral promises of SYRIZA were simply incompatible with these limits.

The bottom line is that the creditors were not able to listen to the debtors and the debtors were not able to speak to the creditors. Beyond the questions that Greece needs to ask itself now—Do Greeks care more about the euro or austerity? Do they want to rethink their position as their financial situation worsens?—are those that the EU should ask. With or without Greece, the EU is here to stay, and it will probably face other disagreements in the future. It, therefore, needs to ask whether EU institutions, in particular the unanimity rule, are too locked.

LOCKED AND LOADED

When it comes to EU institutions (and also to important issues, like foreign policy), unanimous decision-making rules the day. This extremely stringent criterion makes any changes to the status quo almost impossible. For example, the EU has repeatedly tried to modify its institutions through a series of treaties without success (Amsterdam), while others (Lisbon) took almost a decade to achieve. The only exception to this rule was the Fiscal Compact of 2012, which regulated the conditions and procedures of financial support under the threat of the collapse of the euro and was negotiated in a couple of months. In this case, Europeans managed to come to an agreement by essentially omitting controversial issues from the final report. These are the rules that Greece now wants to bypass, but since they were enacted by unanimity they are basically impossible to change, even if many countries dispute their validity.

The modification of EU rules is similar to revising a country’s constitution. A look into the history of such revisions is telling. Below I provide two graphics representing the OECD countries. The table below, reproduced from my article with Dominic Nardi, presents the constitutional rigidity (how “locked” or difficult it is to amend the constitution of a country) as a function of the constitution’s length.

The second chart provides the frequency with which constitutions have been amended as a function of the constitutional length. Longer constitutions are more frequently amended.

The combination of the two figures indicates that longer constitutions are more frequently amended despite the fact they are harder to amend. The EU treaty belongs on the top right edge of both graphs. The length of the Lisbon Treaty is over 47,000 words (including appendixes, it’s more than 75,000). As a comparison, the Mexican constitution (most garrulous among OECD countries) has approximately 57,000. Constitutional revisions have been very frequent in the EU, from the SEA to Maastricht to Amsterdam to Nice to Lisbon. Finally, the constitutional rigidity of the EU—unanimity—is monumental.

Of course, the EU is not a nation, and different countries within it wish to protect their national sovereignty. As a result, the EU has the unanimity principle for serious decisions, and separate elections (at the national level) even for the European Parliament. Different national representations find it difficult to communicate with each other. (For example, most German representatives, regardless of party, are in favor of fiscal discipline, while most of the representatives of southern countries are for growth.)

Dealing with protracted conflicts inside the EU would require the generation of a unified EU voter base, so that representatives could compete for votes all over Europe (north, south, and east). This broader field would force representatives to try to synthesize opinions and transcend national divisions rather than ignoring them.

But more important than the electoral rules are the decision-making ones. The current European institutions have enshrined the status quo. It is guarded by numerous veto players. Yet the Greek crisis is only the beginning of what the institutions will have to deal with. Other economic events, immigration, and terrorism will require flexibility in decision-making.

Regardless of the outcome of the Greek crisis, the issue of locked constitutions is a topic worth discussing.