Much to my surprise the negotiations between
the Troika and the Greek government ended in naught, Greece is officially in
arrears after not meeting its latest scheduled repayment last Tuesday, and all bets are off
regarding its likely exit from the European common currency (as her own leaders
are not clear about the consequences of either a “yes” or a “no” victory in the
hastily summoned vote that should happen this Sunday). Utter chaos, with capital controls already imposed,
banks closed for a week (we will probably see more of that) and a limit of 60
€/day to be withdrawn from ATMs the life of the ordinary Greeks has taken a
turn for the worse (although my particular guess, seeing the amount of money
that had been hemorrhaging from retail banks in the last months, is that a
sizable chunk of the population didn’t have that much money left in the banks
in the first place).
The stock market took a predictable dive the
Monday after the announced end of the negotiations which cost the creditor
countries almost as much as what forgiving half of the Greek debt would have
cost (2% of the market capitalization of listed companies in the main European
markets -not taking into account the losses in Asia and America- of roughly
5 trillion would be 100 billion lost in a single day, versus a total Greek debt
of 250 billion), although it has recovered most of it by the end of the week,
so may be the damage will be contained after all, contained to Greece, where
things are already as bad as it was considered they could turn in the most
pessimistic scenario, and with no prospect yet of how or when they may start
improving, as nobody has a clue of what comes next, when the capital controls
may be lifted or in what denominations they may be paying their daily
transactions a week from now… but in the meantime they sure as hell will cling
to their precious euros as long as they can, which is a total bummer for
aggregate demand and for the overall health of the economy, as you may guess.
Summarizing, a royal mess, with each party of
the negotiations blaming the other for its abject failure (which illustrates a
fourth rule of how organizations function that I may have to add to the three
I’ve already identified, namely: “if there is a choice between a doubtful
benefit and a certain loss of which somebody else can be blamed, ten times out
of ten people will choose the second option”). As it was crystal clear from the
start that both parties would be better off now if the negotiations had
succeeded (although I already warned that Greece would not meet her obligations
no matter what the terms were, as human folly would dictate she would have
overestimated the growth caused by the loan extension, the revenues she would
be able to raise and her ability to cut expenses; and underestimated the drag
on her economy of the austerity measures she would have to agree to), it makes
for an interesting exercise to apply the ADVISE model to better understand what
has been going on under the radar.
First, let’s try to find out what kind of
organizations were involved in the negotiations, as that in turn dictates what
kind of goals we may expect them to have been pursuing all along. The Greek
government is a “political” organization” if there ever was one. As a
government they should have as its main goal the perpetuation of the group they
represent, namely the whole Greek people. Unfortunately for such a people, this
was a new government whose cadres were hastily formed from a coalition of
left-wing parties (Syriza) which didn’t have much time to settle in their role
of representatives of all the Greeks, and which thus had a strong bias towards
their former goal before they attained power: the perpetuation only of those
sharing a homogeneous ideological worldview according to which austerity never
works (not far from the truth), multinational institutions are representatives
of the elites against the interests of the common people (ditto), capital is
inherently evil and opposed to the well being of workers (doubtful at best) and
the solution to most of society’s evils are to be found in more regulation and
a tighter centralized control of what and how people should produce and distribute
(beyond doubtful, into downright falsity territory). At the other side of the
table, under the ungainly moniker of “the troika” we have a mixture of
representatives of the European Union (a political institution with a most
imprecise definition of what and who belong and does not belong to the group it
is supposed to perpetuate), the Central European Bank (a monstrosity of half
economic and half political nature, as its avowed end is not just to make money
for its members, but to keep price stability and “somewhat” facilitate economic
growth of its constituents nations) and the IMF (same as before, with even less
clear and more contradictory goals, which has a lot of merit). This is to say
that everybody around that proverbial negotiating table as at best unsure about
what they were trying to achieve, and at worst had incompatible goals with no
rules for adjudicating between them.
Let’s focus for a moment in the clearest
example: the European Union is as political an organization as can be dreamt
of, so at least its goal should be clear enough. It is, indeed, the
perpetuation of the countries that form it (in its present incarnation, as it
has been varying along time). The means to achieve that goal, as it understand
them, is to ensure the greatest economic prosperity (that’s the standard
perpetuation strategy since the beginning of the Industrial Revolution: more
riches allowed for more and better armed boots on the ground to defend oneself
from real or imagined foes, as I have repeated tirelessly, although in a world
where all the foes are imaginary it becomes a loosing proposition, because the
pressure to produce ever greater quantities of material goods is achieved at
the expense of making everybody more miserable, and instead of growing richer
they end up not only poorer, but also less and less populous), and the recipe
for that prosperity it has settled into can be summarized as free trade and low
inflation. Not necessarily a bad recipe, and it has proved successful for many
decades, so I do not blame European bureaucrats to stick to it. Unfortunately,
what has worked for years may not work any more in a scenario of increasing
automation, increasing competition from lower cost countries and falling
birthrates that put a brake to the growth of the internal market… but we will
come to that later on. Suffice it to say by now that at least the EU
representatives were playing according to script and nothing of what has
transpired allow us to think there was any bad a faith in their moves (other
than relying on a rulebook that has become counterproductive). Along them were
a couple of financial institutions (ECB and IMF) that were mainly interested in
getting their money back and avoiding moral hazard not because that per se made any economic sense (it
should be abundantly clear by now that keeping the austerity measures made that
recovery less likely, instead of more, but sadly it is not clear at all that
just forsaking those measures and letting the Greeks spend like there was no
tomorrow would increase the probability of being paid back one iota) but
because that is what brings more respectability to their directors, and let’s
not forget that for a banker respectability is the highest currency there is in
terms of social position, and social position is what they go everyday to work
to attain, so again no surprises here, Tsipras team should have known from the
start what he may expect from them (and again, as far as we know, they did not
deviate an atom from that preordained script). By the way, the European Union
is a fine example of our first law, as with time its ability to deliver its
purported goals (more prosperity for all the member countries, as the imagined
means to perpetuate them) has grown steadily shakier, the conflicts between
those members have grown more intractable (as the second law predicts), and
they have shown themselves unable to come up with an innovative architecture to
address that inability, resorting to the typical response of attempting to grow
outside of it by the incorporation of additional members that only makes the
problems worse.
Things get murkier when we get to the Greek
negotiating team, for a reason that clarifies much of today’s political
discourse. Under certain conditions, political parties shift gradually their
goals and substitute the improvement of the social position of their members
for the original intent of perpetuating certain distinctive features of them:
more or less imperceptibly they turn from political organizations into economic
organizations. What conditions are those? I would dare to suggest that when the
identity of the group is imprecise or shifting due to external pressures that
can not be resisted, the temptation to stop representing such group and start
pursuing one’s private interests becomes too great. According to Acemoglu and
Robinson’s terminology, that’s the point at which a party that has recently
acquired power intent on representing all its countrymen (and thus lifting all
of them out of poverty, or redistributing more fairly the national product)
finds the potential of already existing extractive institutions and starts
using them for their exclusive benefit. However, I do not think that is what
has happened here. There is a real risk of Syriza, after realizing the utter impossibility
of delivering the kind of economic miracle (free lunchism at its best) they had
promised their electorate may turn instead to steer the state apparatus to
their own benefit. But I don’t think they are anywhere near that yet. Rather,
they came to the negotiating table as a true political party, not pursuing
their own benefit (as an economic organization head would do) but intent on
getting the best possible deal for their faction. The problem is that their
faction was not (or not yet) the one that the troika representatives imagined
it to be. Whilst the latter were thinking in terms of what may make sense (and
be acceptable by) the whole of the Greek population, the Sysriza boys were
still thinking in their allegiance to the leftist cadres from which they
sprang, and so wanted not just the average Greek to get the best possible deal,
but also the average far left street protester to have their opinions
vindicated. And those opinions had a number of red lines that probably were
meaningless for a non ideological Greek but could not be crossed for an
anticapitalist: respect the public pensions! Not a single public servant fired!
Keep the healthcare budget! And if any of those (individually very laudable and
very respectable goals) required additional money to be paid for, the universal
response could only be: soak the rich! Have them pay for everything! (never
mind those imagined rich had left the country, taking their fortunes with them,
long ago, and that the few remaining ones could not burden the enormous pile of
entitlements whose perpetuation was being demanded).
It seems to me that the troika negotiating team
has never been able to wrap their head around that double representation, as
they had grown accustomed to deal with governments that get rid of their
previous ideological baggage the moment they engage in intra communitary
discussions, and act consistently as representatives of their whole population,
with minimal previous commitments, and this greater flexibility to adapt to the
give and take of any negotiation of this kind. So in some sense there is truth
in the view that the Greek team has been too rigid and doctrinaire (that was
the common complaint at the beginning of this little drama: every time
Varoufakis took the microphone it was to lecture and admonish his fellow
finance ministers, with very little in the way of bartering and haggling that
they surely were expecting), but that rigidity and submission to doctrine is a
direct result of where the Syriza boys were coming from and what they perceived as the goals of the organization they belonged to. However, it is moot at
this point to discuss the true origin of the fracas, what seems certain is that
if negotiations are to resume, they will be led by a different team on the
Greek side, after (and if) a slim majority decides to accept what were the
conditions of the troika a week ago (or some slightly adapted version of it).
And no matter what the final result of those negotiations ends up being
(something very close to what has been apparent all along it would be: some
debt restructuring that will reflect losses of between 20% and 50% on the
creditors’ side, a relaxation of the primary surplus target in the vicinity of
1.5% and a couple of “austerity relaxation” measures to throw as red meat to
the Greek public, like a marginal increase of some pensions, or the allowance
to hire a few thousands of public servants more), Greece will not satisfy them,
because the actual economic growth it will experience under them will fall
short of the optimistic projections put together to sell the program to the
European public.
So we will be back at square one in six months,
a year tops. Unless the “no” wins, Syriza feels emboldened, demands the
resumption of the negotiations hoping to exact better terms, only to find that
their European partners don’t want any of it, and kick them out once and for
all, and much as they have vowed not to do it, they soon have to start issuing
IOU’s which end up being the basis of a new currency, as the euros their
citizens have stashed under their mattresses can only take them so far in the
absence of additional credits, that neither the ECB nor the FMI will be in a
position to grant. Much as it pains me to say it, the Greeks are past the point
of no return, and have been for a long time now (as some commenter said, the
only valid option for them would be to rewrite the last twenty years of their
history, at a minimum), and their choices are between a lot of pain now and a very
uncertain future, or some pain now, lingering uncertainty, and the same lot of
pain (and of uncertainty) in the medium term…
What about the application of orthodox (very
apt apropos Greece!) Keynesian policies to increase aggregate demand through
aggressive government spending that would be enabled by exiting the “euro
straitjacket”? wouldn’t that, coupled
with the regained competitiveness enabled in turn by a much devalued new
currency, allow Greece to quickly bounce back, and even become a shining
example of the foolishness of austerity policies, and the kind of beacon for
alternative policies some progressives seem to dream about? Dream on, little
boy, dream on. I wouldn’t bet a single euro on it. As I’ve said many times,
austerity doesn’t work (we have ample proof of that)… but increased public
spending doesn’t work either (see Japan). You can grow your debt as much as you
want, hoping that inflation will ease the burden of paying it, but increased
automation and population decrease will prevent such inflation from
materializing and growth to resume. So you would in that scenario most likely
have huge devaluation, ballooning debt at crippling interest rates (to pay for
imports that could not be substituted), and the same dismal growth and persistent
joblessness. Lousy deal, but all deals available to Greece now seem to be
equally infested with lice.
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