Sunday, June 24, 2012

Renegotiating the Memorandum

The next few weeks will probably teach us all a thing or two about negotiating strategies and tactics. Right now I would say that either the home team will win or the visiting team, but there won't be a draw.

The new government has published the position with which it will enter negotiations. The following statement caught my immediate attention: "The three parties also agreed against any sackings in the public sector". There were several other points where my gut reaction was that they would cost quite a bit of new money.

The Troika's position, so far, has been confusing, but what else would one expect from the Troika? A clear "njet" has been voiced here and there but it really didn't sound like a clear "njet". And the more common reaction was that there may be preparedness to lengthen some of the time frames. But, of course, "no changes to the substance".

It seems to me that there are oceans between these two positions which neither side can afford to bridge. At the same time, neither side can afford to come away from the (re)negotiations with a significant loss of face.

Chances are that, at the end of the day, we will have some form of new agreement about which both sides will be very proud. How they get there will be fun to watch!


  1. Prof. Varoufakis has answered this correctly i think. There is a difference between negotiating and pleading. The greek goverment is pleasing for a political intervention from "above" to the troika, to throw them a bone in order to satisfy somewhat their audience. Will the audience be satisfied? I doubt that, since the people expect something concrete that will help them economically and i don't think the troika can conceed much. The goverment will gain some time and will try to sell it as triumph (like Mr Papandreou was doing every time he had to re-save the country and for mysterious reasons, after 3 months he had to save it again).


  2. Anyway, to me, it is becoming always more clear that this won't work. This is the last "negotiation". Germany simply gains time and the greek goverment is buying (in vain) political time in a desperate attempt to save the game.

    The main errors done:
    1) Mr. Papandreou accepted in 2009 an impossible solution and lied repeatedly to the pubblic about the feasibility. This worn down the pubblic opinion and by now nobody believes that the debt is sustainable. This is like saying "take a bottle of water and walk through the Sahara, you can do it". People feel like their sacrifices were made in vain.On the bright side, the european banks ended up losing peanuts in comparison. This earned him the Quadriga Award in Germany and an enthusiastic at first Mrs Merkel. Once the banks were safe, they realised he was the opposite of what the Quadriga Award was about. How odd!

    2) Mr. Papandreou, with the troika tollerance, made his best to postpone structural reforms and instead took the way of the "axe", to do what everyone can do: "press a button and cut income".

    3) Mr. Papandreou, again with the troika tollerance, changed the tax legislation, like shirts. The thousand of greek companies that left for other countries (3000 only in Bulgaria, accounting for 1% of Bulgaria's GDP as per bulgarian PM's quote), didn't leave because of the high labour cost in Greece (in fact, with the memorandum, this was reduced quickly). They left because they couldn't keep up with the changes in taxes.

    4) Passed the shine of the Quadriga Award, the threats of grexit started and the capital flight from greek banks, that won't be reversed. Even after the recapitalization, greek banks are in no position to do the job they are supposed to do, since they are so dry that the recapitalization will be their last drop of liquidity to hold tight on.

    5) Nothing was really made to attack the shadow economy. Probably because of local interests and the fear of social problems (what some thousand of illegal immigrants do if they are jobless in a country when Kalashnikovs are easy to find?). But at only 22% of GDP, it was never a big problem after all.

    6)The PSI in the way it was done, was more of a damage than of help.If you have to do a haircut, do it once and for all. Not every 2 years.


  3. 7) Political cost impeded Mr. Papandreou to cut other public expenses instead of the pubblic investment program.

    My conclusions:
    - Mr. Papandreou continued the virtuous work of his father.
    - The troika are either morons or simply didn't really care what was happening, because they were buying time for the eu banks.
    - Hats off to Mrs. Merkel that i don't believe she was naive and didn't see the problem. I think it was a wonderful plan: Save the eu banks with minimum damage, prepare the terrain for grexit, even by fueling the local press and pubblic opinion with her usual stereotypes (so that the grexit will come not only natural but also pleasant) and did the magnanimous gesture of the PSI, which alas, wasn't enough and in all this, the majority of greek debt has changed from greek law to british,where even after a default, the creditors will have more chances of getting something back.

    If i were Mrs Merkel, i would pray to have finished the euro-saving plan early, so that i can arrange for the Grexit to happen a bit before the german elections. It may win her the elections at the last moment :) Two in one. If i were German i would vote her just for ousting Greece. Then she could give Mr. Papandreou yet another award. :)

    P.S.: Since, leaving the euro is something that remains in history, signalling that the euro isn't one way ticket only, it is very important that Greece leaves on her own will and not because Germany had anything to do with it. Otherwise next time investors may think that Germany will oust another one. So it was very wise on the german gov's part the way they conducted the matter, both economically(i wonder, how many years did the East Germany require to recover or would the West Germany come out of her post-war conditions in 3 years without the american plan?) and at communication level where both Mrs Merkel and Mr Schauble receive full grades from me.

    I hope that it will serve as lesson for future Greeks and their politicians, once this will be taught in history lessons.

    As things have come, Greece will have to face reality and start over. Besides, the drachma was much prettier than the euro. And the economic crisis is the result of a social crisis. Greece needs to find its own self again.Even 50 years ago when people had less income, nobody was walking hungry at the streets or sleeping on the sidewalk. We must re-discover our traditional values.After all,Diogenes,passed to history, not some rich merchant. Mrs Merkel can keep living with her money, her Bild culture and the forgotten Goethe crying in his tumb. For as long as her attitude will permit the other Europeans to accept that as their own fate.


  4. On a closing note. As Mr. Floridis, former PASOK minister, later resigned, revealed, Mr. Papandreou, in 2009 didn't negotiate anything in the 1st memorandum, he just signed whatever they were putting in front of him and never wanted or managed to form a greek negotiating team that would be in continuous contact with the troika.

    I guess that's how you win Quadriga Award for "Power of Veracity", even though you won the elections by blatantly lying and promicing money, only to say a day after "well, i 've brought you the troika".
    I think the Quadriga Award is too little for such a man. The banks of Europe should raise money and make him a golden statue of him.

    After the "greek statistics", the "greek negotiations".

  5. Oh, and although related to shadow economy, it's worth a prominent mention. The tax evasion. When you have a country where 80% of the tax of persons comes from those taxated at the source (pensioners and those on salary) and you don't concetrate immediately to that as no.1 priority, you are a fool. Instead, they dried the ones who paid taxes completely, removing the money from the market, while the tax evaders sent their spare money to Switzerland. Then you have higher recession, what a surprise, since you cut the income of those who were spending all their money in the market anyway and not of those who had more money than they were spending.

    But, you need to have a PhD from LSE to understand these things. Oh wait, our first finance minister had it.