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Thursday, February 19, 2015

Greek Negotiating Strategy a Phenomenal Failure?

Stephan Schulmeister is to Austria what Prof. Paul Krugman is to the rest of the world: the representative on Earth of God John Maynard Keynes. Schulmeister has been an outspoken supporter of SYRIZA, not necessarily for its party program but as the catalyst for a change in Europe's social and economic model of the last decades. When Alexis Tsipras visited Vienna recently, Schulmeister had organzied a demonstration in front of the Austrian Chancellory where they held out in heavy rain!

Schulmeister just gave this very interesting interview to Die Zeit Online (in German). What really caught my attention was the following sentence:

"The Greek negotiating strategy has failed phenomenally, and part of that is psychology. It appears like Mr. Varoufakis has a very strong ego and as an economist he is a newcomer to politics. Intellectuals who move into politics frequently make fatal mistakes because they think they are so smart. Regrettably: The prize for that is often paid by millions of people. That is what the Christian and Social Democratic politicians of Europe must not allow to happen!"

Hear, hear... that's all I can say about this!

24 comments:

  1. You obviously agree with this assesment, but what exactly is the criticism here concerning Greece's negotiating strategy. Greece's strategy is transparent it has opted for an open and public negotiation for two very valid reasons: to quickly bring down Greek public expectations since from the very beggining they have managed to move towards a realistic solution (debt restructuring instead of haircut, acceptance of some 70% of previous structural reforms along with a no deficit commitment) and reason number two to galvanize the public and gain support for a possible exit referendum. This support translated in a record 80% approval rate works as leverage in the negotiation process and as an exit strategy. It must be obvious to anyone that has ever sat in a negotiation table that unless you have the option to break negotiations and examine Plan B in a situation then you have absolutely no leverage. A negotiation behind closed doors in the Greek case would not be a negotiation but a dictation of terms in a form of ultimatums. With these in mind I think that Greece's strategy have been brilliant so far and Kudos to mr Varoufakis if he designed it. If mr Schulmeister thinks ohterwise it would be very interesting to read his points but not much can be made by the sentence above. Also as far as some comments concerning his character go, these are to be expected. It is a common tactic to find faults in the messenger if you don't like the message to give pretext for a change of strategy from your counterparty by replacing him and sending someone new.

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    1. Well written Anonymous 7:07

      I agree with you 100%. Although this stance of Varoufakis me lead us down the rabbit hole, but it if this stance of the eu technocrats and German continues, i will sonn most certainly prefer the rabbit hole.

      Like i wrote in another comment. "Beare of what you wish for."

      V

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    2. Thank you. We will soon find out. The thing that troubles me though is the nature of the criticism he receives. Not one word of what alternative course he should have followed or if the content of his proposals is illogical and unacceptable and why. We get complains about his "style". This is classic deflection tactics. One should also try to examine what are Germany's counterproposals. Basically what they are saying is "You have to come up with 5,6 billion euros in primary surplus in 2015 and 9 billion in 2016 no matter what, if your economy is completely wrecked in and your population starves to death in the process we do not care". This is the extent of the lunacy Varoufakis is facing in the eurogroup.

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  2. That is no hazard that a man called Schulmeister plays the schoolmaster :O

    >"That is what the Christian and Social Democratic politicians of Europe must not allow to happen!"

    And therefore: Those who allow it to happen are no Christians
    and not social o_O

    H.Trickler

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  3. I am not so sure about this. I would not have engaged in the same way as Varoufakis, but I see no evidence that he is in error. The German position is firmly entrenched, and reliant on a perception of power. Varoufakis has challenged that power with rationality: across the world people are applauding him for doing so. We are all sick of the arrogant low quality politicians that have been screwing up our societies and economies for the last 20 years.

    I do not know who Schulmeister is, but I can assume that he has made no impact on international politics if I do not recognise his name. And I lived in Vienna briefly!

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    1. They can't stand Varoufakis. He bring ripples to there nicely planned system of the EU in their "eyes."

      V

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  4. How come you love Varoufakis and hate everybody else?

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    1. How come all of your questions have erroneous axioms?

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    2. @ Stranger. It is based on empirical evidence. Reading your posts since some time ago it is more than obvious

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    3. Sadly for you, your grasp of other people's beliefs and opinions is as seriously deficient as your non-existent grasp of economics. Perhaps a little caution would be advisable -- e.g. not jumping to conclusions all the time, and actually using empirical evidence in an intelligent way. Sorry to make such great intellectual demands of you.

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  5. Wait till tomorrow to see and judge if failure or win

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    1. Regardless of how the media present the "actual" result, Greece and its stance has already won. And this is intolerable. Even if we are smashed today.

      V

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    2. And to add, this whole debate has and will spark a change in the Euro, regardless of what will happen to Greece.

      V

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  6. The Syriza negotiation style in the last weeks, but also the low speed of reforms in the last years in Greece has led to a quite complete loss of trust. This comment in a German paper (left-liberal, usually much more greek friendly) shows it very clear: http://www.sueddeutsche.de/wirtschaft/griechenland-verhandlungsstil-der-vertrauen-zerstoert-1.2358223

    So Schaeuble requests clear and verifiable offers instead of cloudy promises, before giving greece more money again and again. He is not polite, but I can understand his position. Especially as Tsipras and Varoufakis are not nice and polite either.

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    1. Greece is requesting a debt restructuring in order to support the primary surpluses lowered to 1,5% instead of 4,5% sometime during the next 6 months, during these months the plan is to bridge the gap financialy using t-bills and the return of 1,8 billion euros profits from the SMP program from the central banks as per the original agreement, finaly they request the right to pass whatever laws they see fit as the government of a sovereign state (I know, this is what the EU has come down to..) within the fiscal framework of a 1,5% primary surplus. No new bilateral loans are necessery under this proposal. Schaeuble rejected this and insists on the previous program that calls for 3% primary surplus in 2015 and 4,5% in 16 totaling 16bilion euros resulting in something over 20 or 25 in cutbacks/taxhikes.

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    2. Several people have stated unequivocally, and you seem to imply, that the 1,8 BEUR of SMP profits 'belong' to Greece. I can share that sentiment. The fact, however, seems to be that NOTHING (no SMP refunds, no debt relief discussions) can take place before completion of the 6th Troika review. This article provides more details:

      http://www.macropolis.gr/?i=portal.en.the-agora.2139

      The T-bill financing strikes me as really a bad trick. Everybody and his brother has been complaining for years that the Greek economy is collapsing because of lack of finance and now that there is finance available, the non-productive state wants to crowd-out the productive private sector?

      Finally, anybody is entitled to argue that no new bilateral loans will be necessary but everybody is also entitled to question that in the absence of specific numbers (and Greece has not provided numbers todate). Between the Finance Ministry and the Bank of Greece there seems to be disagreement about the January primary balance. The Ministry says positive between 300-500 MEUR, the BoG says negative around 200 BEUR. Either way, the government has begun implementing measures which will eventually cost 11 BEUR according to SYRIZA (27 BEUR according to others). They will be financed with 12 BEUR in new taxes from cheaters and smugglers. I would bet any money that the expenses will come long before the revenues kick in, i. e. financing need!

      In closing, I find it kind of - pardon the expression - banana republic style to promise on one and the same day in Brussels that agreements will be honored while on the same day approving in Athens legislation which unilaterally violates the agreements. Politics differ from the business world. Had this happened in my banking career, the banks unanimously would have sent the borrower into bankruptcy.

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    3. I do agree that the T-bill solution has drawbacks but is it better to ask for a new bilateral loan that comes with baggage like having countries like Slovakia very rightly complain against such bailouts? A solution that does not involve the European taxpayers is far preferable politically.
      I need to point out also that the government has not began the implementation of any cost heavy measures, none whatsoever so far. In fact they have not even begun to pass any legislation. How could they since there is no deal on the debt and surplus issue. The legislation that you are referring also concerning real estate loans and how the banks will handle them has been postponed and its discussion will take place if and when a deal has gone through. I find it troubling though that the fact that a sovereign government that exercises its right to pass laws within of course a restricting fiscal framework agreed within the eurogroup is characterized as "banana republic". Sure the government absolutely has to produce the fiscal results required by its arrangement with its international lenders and its participation in the eurozone but how it will operate within these fiscal limits should be within its discretion as a democratically elected sovereign government. Put simply it has to respect a framework arranged within the eurogroup but other than that it is Greece's bussines as to how to operate within said framework. Finally some of the measures implemented by the previous government have clearly proven to be counterproductive and have damaged the Greek economy. The bailout MoU is not written in stone and has not been compiled by God. It had many flaws as proven by the deep recession and in any case it is Greece's job and duty to compile its own plan towards recovery and implement it. I do not mind if Greece is kept on a tight leash by frequent controls concerning budget implementation but other than that it is no-ones bussines as to what legislation the government passes and most certainly it should not be characterized as a "unilateral action". It is insulting to democracy. Meeting debt obligations is part of the contractual agreement the way I see it, having stooges in place of government officials and run the country by email from abroad is not.

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    4. @ Anonymous at 8.52
      Personally, I think if the Greek government had said back in 2010 - voluntarily on its own! - "We'll reach a primary surplus in 2013 but leave it up to us how we do it", one could have left it at that. I guess the reason why one never leaves it at that is because there is probably no government in the world which will do that unless there is tremendos pressure. Certainly not the dramatic turn-around which Greece had to implement.

      As a manager, I have alway told my collagues: "I would like to agree with you on the 'what'. The 'how' of how you are going to reach the 'what' is up to you. But if the 'what' doesn't happen, I am going to start questioning your 'how'". I assume you follow what I am trying to say.

      Earlier this week, I had read in the Ekathimerini about 2 or 3 laws which were going to be approved in parliament today, Friday. Can't find the article but I believe all laws were roll-back's of specific reforms required by the Troika and implemented by Greece before (I believe one had to do with labor laws, tax laws and something else). I did not read today that any laws have been passed. My point was that only a banana republic would promise, on the same day, one thing in Brussels and do excactly the opposite at home. Maybe common sense touched them and they pulled the legislation.

      Another classic management slogan is: "You tell me your plans how you will reach your targets and I suggest you do that because, if not, I am going to have to make the plans for you and you may not like my plans...". I praise SYRIZA for saying that they want to take Greece's fate into their own hands and propose reforms which they can wholeheartedly support. I hope that they will propose good reforms. George Papandreou's greatest mistake was that he simply asked the Troika what they wanted him to do and then he complained that he didn't like the outcome of that.

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  7. The irrationality of some commentators in this blog proves the very basic preconditions not present in current Greek population.

    This statement is not a judgment of value, I had several times said that I do like and respect Greeks and very much enjoyed Greek people and the country during my past visit.

    Everybody should years ago have seen that such huge differences unavoidably prohibit a successful monetary union. This is evident also for Italy, and may be soon for France too.

    H.Trickler

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    1. You are probably right Mr. Trickler. Please help us jail both our back then politicians and JPM for @hiding debt@ that the eurozone wasn't aware of.

      V

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  8. Could it be a phenomenally failed prediction?

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  9. I still don't get how this new deal handles the refinancing needs till April and until the review of new reforms has been approved upon successful implementation (in 4months)?

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  10. TRUST is the key element in all financial arrangements, particularly in restructurings. A lot of trust has been unnecessarily destoyed. As I said elsewhere: "It may take quite some time to build up trust and credibility but you can lose it in a very short time".

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