Monday, July 13, 2015

The Greek Crisis: Europe's Game Of Thrones (aka "A Game Of Debts")

The author wrote about the last "Greek Crisis" three years ago, when it was (last) having to submit to long-term economic decline in order to pay off its debts. Having toppled the governments in Greece and Italy and replaced them with obedient technocrats, in order to enforce the countries' debt obligations, it left few at the time in doubt about who was really in charge: Angela Merkel. It was clear what the ultimate price of losing the "Game Of Debts" would be.

This time around, the list of characters in Europe's ongoing saga is somewhat different. Angela Merkel of Germany, still rules the roost as the effective matriarch of the Eurozone, with her deputy, Wolfgang Schauble, sterner and meaner-looking than ever. The French had replaced Nicolas Sarkozy with the Francois Hollande. Meanwhile, in Greece itself, the unpopular, pro-austerity leader Antonis Samaras, who had been the beneficiary of the events of 2012, was ousted in late January 2015 by the Alexis Tzipras, leader of the radical leftists. The leaders of various other nations of the Eurozone would also have a part to play, one way or the other (and depending on what side they took). Then there were the other fringe - but at times, extremely key - players that represented the other byzantine layers of Europe's bureaucracy: the European Parliament, the Commission, and, last but not least, the ECB. Oh, and there's also the IMF, who aren't European at all, but were somehow roped into getting involved in the Greek debt crisis. Go figure.

"Game Of Thrones" meets Game Theory

Alexis Tzipras, as leader of the radical leftists in Greece, was elected for one key reason: to abolish the onerous terms of its debt obligations, and bring the country out of crippling, humiliating, austerity.
His followers were an odd bunch; an alliance of radical leftists, Greens, and Feminists. However, in order to have a majority, he needed the support of another party. He opted for the Independent Greeks, mostly comprised as an anti-austerity off-shoot of the former governing party of Antonias Samaras. This is a little like trying to imagine a British government that was a coalition between the Greens and UKIP.
Among the characters that comprised the government, the finance minister Yanis Varoufakis, was the most loquacious and outspoken. An academic and economist, he was also a proponent and apparent expert in "Game Theory": very roughly speaking, a confection of economics, mathematics and psychology. Varoufakis was set to be the bane of Wolfgang Schauble's life.

In the first weeks of the new Greek government, Varoufakis, as finance minister, was happy to go on a "charm offensive". However, this quickly came to a grinding halt with the first sets of talks between the other governments later in February, which then dragged on and on over the following weeks and months like a never-ending, interminable soap opera. It got the point where, in June, the Greeks told the IMF (the other major player in this saga) that they would be the first developed country to miss its loan repayments.

By this point, it became abundantly clear to others in the Eurozone that Tzipras and Varoufakis' "Game Theory" was taking the rest of the Eurozone for a bunch of fools. The final insult - in Merkel's eyes - was when Tzipras suddenly walked out of talks at the end of the month and announced a referendum to take place the following weekend, where he would recommend a big Greek "NO" to the bailout terms. This then leads to the "double whammy" at the end of June of Greece missing its IMF payments, and then the ECB decided that enough was enough. For some weeks and months, Greece's banks had been effectively living on ECB life support, as Frankfurt had kept on allowing Greece greater and greater lines of credit. At the end of June, this limit was frozen.
The next two weeks were the "endgame" of the saga, as it currently stands. The Greek government were forced to close the banks and implement capital controls to preserve its fast dwindling supplies of capital. During the week of "campaigning" for the bailout referendum, Tzipras made attempts to restart talks with Merkel, only to be rebuffed: they could talk again only after the referendum made things clearer. It seemed his "gambit" was failing. Then, to general shock all-round, the referendum came out as a decisive "NO"; Tzipras was in the position where his bluff had been called, not only by Merkel, but by his own people. What was the plan now?
The final week of the saga sees two major changes in Greece itself following the referendum: Varoufakis - having offended just about everyone in Europe with his undiplomatic manner - is eased out of his role as finance minister, seemingly as a sop by Tzipras to ease talks with the rest of the Eurozone; meanwhile, Antonias Samaras, leader of the former governing party, steps down after so clearly being on the losing side of the referendum campaign.

So talks resumed again. The situation continued from tragedy to farce as the new Greek finance minster arrived at talks the next day - but with no new plans. Finally, Tzipras gets the message, that time really is running out. Given an ultimatum to have a "real" plan by Friday or prepare for Greece to be out of the Eurozone and effectively insolvent on Monday. By now Tzipras' "Game Theory" was shown to be truly wanting against the raw power play in Merkel's version of "Game Of Thrones". Tzipras' "gambit" - that Greece ultimately wouldn't be allowed to leave the Eurozone, at any price - rested on a fatally-flawed assumption. In the end - as we shall see shortly - Merkel would take Tzipras' false assumptions and throw them back in his face. Tzipras would be hoist by his own petard.

It is at this point that the French, for their own reasons, decide to send some of their senior people to Athens. The French, so it seems, have had enough of Germany's high-handed strategy, and seek their own "moment of glory", by trying to hold the Eurozone together. So the Greeks - with French assistance - at last put forward something approaching a "real" plan, that looks a lot like the one that was rejected in the referendum only a few days earlier.
Except that by now, Germany, Schauble, Merkel and their Northern and East European allies seemed to squeeze the thumbscrews even tighter in their negotiation strategy. By Saturday, citing fundamental issues of "trust", Germany was making demands that were almost off the charts, beyond anything that a reasonable person could possibly agree to. If Greece were to remain in the Eurozone, it would have to pay for it - dearly.

But this was the point: Merkel's "gambit" was that she wanted Greece out of the Eurozone, and would offer conditions that would make it extremely difficult for Tzipras to agree to. Either way, it was a win-win scenario. She would have Tzipras over a barrel regardless.

What followed over the weekend was a marathon session of negotiations: two sets of inconclusive negotiations, followed by a sixteen-hour session between the leaders. Around dawn on Monday, it has been said, Merkel and Tzipras were about to walk their separate ways, only to be brought back together by Donald Tusk. In the end, seemingly a broken man, Tzipras agreed to the conditions. He had got a few cosmetic amendments, and some vague sounds about debt relief in the future, but the deal he signed was far, far worse than anything that had been proposed - and rejected - before.

Tzipras had played Europe's Game Of Thrones and had lost, big time. The question is: what happens now?

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