Greece's Negotiation Game and the Eurozone Day of Reckoning

Greece has a point. Question is, how best to present it. It's only a fortnight since Greece's early elections produced a new coalition government partnered by radical leftist SYRIZA and radical nationalist Independent Greeks.
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Greece has a point. Question is, how best to present it. It's only a fortnight since Greece's early elections produced a new coalition government partnered by radical leftist SYRIZA and radical nationalist Independent Greeks. SYRIZA's leader and Greece's Prime Minister, Alexis Tsipras, campaigned on an aggressive, anti-bailout platform that resonated with an electorate fed up with a German-inspired austerity package whose extensive fiscal consolidation and more limited structural reforms have produced human misery reminiscent of the Great Depression. SYRIZA's governing partner, the Independent Greeks, ran a campaign that drew from those same wellsprings of national humiliation and popular despair, amplified by historical grievances which conjure up memories of Germany's occupation of Greece. Given Greece's governing coalition, there should be little surprise that Athens and the Troika (the European Central Bank, ECB, the European Commission, EC, and the International Monetary Fund, IMF) are heading in different directions. But Athens' high-stakes negotiation game has brought deadlock with Eurozone leaders, and given Greece's imperiled financial and humanitarian realities, all the pressure is on Athens to rapidly rethink its negotiation tactics and objectives. By hitting the reset button before the emergency meeting of Eurozone Finance Ministers that is two days away, Greece could reap significant material gains and an upgrade in the country's embattled international image.

Since its first week in office, the government in Athens made a series of moves that were ill-advised for purposes of a constructive engagement with European power-brokers in Berlin.

Tsipras and Finance Minister Yanis Varoufakis left Berlin for last on the shuttle diplomacy tour of EU capitals intended to establish the credibility and momentum for a successful launch of Greek demands. The transparency in Athens' apparent strategy of divide-and-conquer antagonized EU leaders who would be key to the success of the new government's negotiation aims. French Finance Minister Michael Sapin rebuked SYRIZA's approach, cautioning that "There is no point in playing euro zone countries against each other, and especially not France and Germany because ... a solution that helps Greece while , making sure it meets its commitments will have to go through an agreement between France and Germany." Meanwhile, the CDU-SPD coalition in Berlin seems as united as ever on this.

Soon thereafter, Varoufakis made Athens' first U-Turn, abandoning the demand for a debt write-off, and instead, proposing to swap outstanding debt for new growth-linked bonds. As the European press reported that Athens had shifted its negotiating platform, Greek media were trumpeting SYRIZA's "tactical ploy" and uncompromising adherence to its election promises, while SYRIZA supporters mobilized in Athens to demonstrate their resolve. The basics of a two-level negotiation game and smart power apparently eluded the new government, which paid short shrift the credibility consequences of rhetorical softening abroad and media triumphalism at home.

By the time that Varoufakis for meetings with his counterpart in Berlin, Wolfgang Schauble adhered to the legalistic German position that "new elections change nothing" in the Troika (European Central Bank, European Commission, and the International Monetary Fund) agreements negotiated with Athens, so that the Greeks have no alternative. Addressing the press in Berlin, the two Finance Ministers couldn't even manage consensus on whether they had agreed to disagree on next steps.

Now back in Athens, the Prime Minister and Finance Minister have little to show for their initial foray into negotiation strategy and diplomacy. The ECB has announced the suspension of its waiver for junk-rated Greek government debt as collateral for bank loans, the Greek Stock Exchange continues its free fall, and Greece's entire EU bailout expires on February 28th. Since Germany demonstrates little sign of blinking first, the game of mutually-assured-destruction that pits Berlin-led Eurozone Finance Ministers against Greece can only end in disaster if Athens adheres to its current negotiation approach.

This reality means that SYRIZA leaders need to recognize that their goal of ending Greece's status as a "debt colony" must take into account an EU playing field that is getting rougher by the moment. Greece's elections have ushered in a year of national elections across Europe, from the Baltics to Britain and the Iberian Peninsula, and the pre-election climate is already showing signs of becoming a de facto referendum on the effects of the current, German-led policy mix in the Eurozone. The Athens government needs to differentiate between their dreams versus feasible outcomes in view of multivariate negotiating constraints. At a time when EU politicians are worried about growing social strains and party polarization, all tied to questions about the sustainability of a Eurozone policy of dogmatic austerity, some of Greece's demands may be seen as an unwelcome headache.

Athens should get its priorities straight and its brand in order. The debt write-off is not the real issue. After all, the country's largest creditor is the EFSF (141.8 billion euros), and the average maturity of EFSF loans to Greece is just over 32 years, with the last payment due in 2053. Greece pays about 1.5 percent on those loans, and any write-off will have only a minor impact in easing the debt-servicing costs before 2023. Greece's real economic problems lie elsewhere, and so should SYRIZA's negotiating focus. There is need to relax the paralyzing Troika straightjacket on fiscal targets - one of the causes that brought down the moderate Conservative government in Athens - and to find common EU solutions on the conditions necessary to boost foreign investments and growth. Greece can only lose by sticking to a fanciful negotiation game based on debt relief and driven by ideological dogmatism and dependent on nationalist gestures. Greece deserves better, and it's up to Athens to convince its Eurozone partners that what is good for Greece is what is good for Europe.

How does Greece's new government make these points with European partners who are skeptical about SYRIZA's tactics, objectives, and capacity? Italian Prime Minister Renzi's gift of a tie to Greek Prime Minister Tsipras was not all humor: there was also a sober message that substance and form relate to each other, that reality is shaped by perceptions. First of all, it's time to ditch the posturing of self-styled revolutionaries pretending that David will beat Goliath--and if that means putting on a tie and putting down the cell phone, then, have at it. Next, Athens should be clear that political stability and domestic consensus is a necessity for economic improvement.

Greece's incipient and fragile recovery (in the third quarter of 2014, Greece's growth was higher than that of any other Eurozone member) was halted by the country's early elections, which were partly the result of Troika intransigence in the face of the impossibility of austerity leading to durable economic recovery in Greece--a message already understood in other EU countries.

Finally, SYRIZA needs to put aside the politics of confrontation, and persuade the Troika to do the same. Tsipras and Varoufakis should be clear that Athens is committed to the continuation, not reversal, of structural reforms, as well as to benchmarks for implementation of still-overdue structural changes that can enhance predictability and productivity for the business sector and foreign investors in Greece. If Athens resets its negotiating approach, it will be up to Eurozone leaders to show their maturity in agreeing to more flexible management of budget-surplus targets and in silencing the convenient rhetorical scapegoating of Greece for laying bare the tensions in the European Project.

There is still room for a sensible negotiation with Greece's partners. But time is of the essence for Greece and for Europe. The next day of reckoning is near.

Dr. Kostas A. Lavdas and Dr. Elizabeth H. Prodromou are professors at The Fletcher School of Law and Diplomacy, Tufts University

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