Political Agenda Behind Greece's Wild Swings

Being dysfunctional in bailout talks could actually help the ruling party.

What if he isn't playing games?

Photographer: Kostas Tsironis/Bloomberg

This late in the game, it's worth considering whether the Greek government actually wants to reach a deal with its creditors.

These negotiations have been going so badly, for so long and with so little progress that "What are the Greeks playing at?" has become a frequent question. In a View column today, the physicist Mark Buchanan gives the intriguing answer that Greece and its creditors may be stuck in something called the "ultimatum game" -- a situation in which two unequal sides can't reach the logical agreement, because the weaker party is too insulted by what's on offer.

As Buchanan says, there have been a lot of attempts at explaining the Greek government's erratic actions, often encouraged by the game theory expertise of Greek Finance Minister Yanis Varoufakis. My fear is that this is not a game and that the Greek position may be determined by rational, if venal and misguided, political calculations.

Related: Greece Default Watch

Put yourself in the shoes of Prime Minister Alexis Tsipras. He heads an umbrella party called Syriza, which brought together more than a dozen fringe groups, ranging from neo-Marxists and Trotskyists, to feminists and environmentalists. What they have in common is that they are all, broadly, anti-capitalist and anti-establishment.

None had ever been close to reaching national government, or until a year or two ago really expected to. Aligning them behind any policy that suggests a serious concession to the establishment -- which in this case includes Germany, the International Monetary Fund and the European Central Bank, as well as the mainstream parties in Greece -- would be like herding cats.

What's more, Syriza's support base includes many of Greece's long-term unemployed, who have nothing to lose from Greece leaving the euro or imposing capital controls, as well as people with vested public and private sector interests who have everything to lose.

This problem is reinforced by the way in which Syriza gained power, promising everything to everyone. Tsipras and his party campaigned on a pledge to stop complying with the core terms of the largest bailout of a sovereign nation in history. They objected (correctly) to the elements of austerity within it, and (wrongly) to its requirements for economic reform.

At the same time, Syriza couldn't get elected by saying this would require defaulting on the debt and leaving the euro, because most Greeks didn't want the drachma back -- and according to a poll earlier this month, 74 percent still don't. So the party offered a proposition that could be met only if Greece's euro area partners and the IMF capitulated: End the bailout terms, but keep the bailout.

This has put Tsipras and his negotiators in an invidious position. To accept something that simply tweaks the bailout but continues austerity and reform would incur huge political risk. Tsipras recently got a taste of that when he came back to Athens with a new offer from creditors; much of his party revolted and he changed his apparently open-minded stance within hours.

At the same time, if Tsipras were to simply walk away from the talks, default and Grexit would follow. Most Greeks would be appalled, and would blame him for causing a debacle they didn't vote for. So he's damned if he makes a deal the creditors will accept, and damned if he doesn't.

The honest way out of this dilemma would be to hold either a referendum or fresh elections to answer the clear question of whether Greeks prefer to abide by the bailout terms, or leave the euro. But there is another possibility.

What if it isn't the Greek side that walks away, but the euro area and IMF? In that case Greeks might blame a Grexit on them, rather than Syriza, which could claim to have done its best and to still want a deal. Perhaps that's what German Finance Minister Wolfgang Schaeuble had in mind when he said on Tuesday, "Syriza has tried to some extent to play a blame-game against Germany,” and that “we’d be pretty daft if we were engaging in it."

Greece, in that case, might be in terrible shape, but Syriza would survive politically, for a while. I hope these aren't the calculations behind the Greek government's recent actions, such as suddenly adding debt relief back onto its list of demands for what is, after all, only a preliminary agreement to complete the current bailout. Debt-relief-for-reform would be a proposition you'd expect for the new bailout arrangement that would follow.

If Tsipras has given up on a deal and is now just trying to engineer an endgame that retains his political support, not only would Greece suffer more than it has, but I suspect his political career would be short-lived. Syriza simply isn't equipped, either ideologically or in terms of competence, to pull off a rapid recovery from default. The economic reforms such a feat requires would make the demands of the bailout look timid.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

    To contact the author on this story:
    Marc Champion at mchampion7@bloomberg.net

    To contact the editor on this story:
    Mary Duenwald at mduenwald@bloomberg.net

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