Our prior post (July 8) was inspired -- some would say instigated -- by a worried Greek reader. She asked, "If you were advising the Greek Government, what would you recommend?"
Here we are, a week later. The ink is dry (almost) on an agreement (sort of) between Greece and its creditors. We can now respond to our reader´s question.
Why the wait? I repeat our long-standing policy. This blog does not give advice; it offers opinion. The line between them is not always clear. Please keep in mind three considerations:
"An opinion may consist of advice which is (i) deliberately offered too late to be actionable; (ii) knowingly impossible to implement due to circumstances prevailing at the moment; and/or (iii) offered with the foreknowledge that the simple fact of its publication will render its practical value null and void."
What follows is opinion as defined by criteria (i) and (ii).
A Five-Point Strategy for Greece
Fate is what happens to you, the rudiments of the world.
Destiny is what you make happen to fate.
-- Rafael, Pillars of The Sea --
I will say at the outset that I support the Greek people in their demand for a new deal. Under the existing bailout conditions, Greece was on the road to ruin.* To see the devastation in stark quantified terms, click here. I find especially revealing, as well as disturbing, the 35% rise in suicides between 2010-2012.
The present Greek Government´s tactical errors regarding the bailout can be ascribed to youth and political inexperience. Prime Minister Alexis Tspiras is 40 years old. He entered serious politics in 2006. The political life of Yanis Varoufakis, Tspiras´ ex-Finance Minister who was responsible for a large part of the negotiations with creditors, began in 2004-6, when he served as an economic adviser to Greek Prime Minister George Papandreou.
He who makes the rules of the game wins the game. Greece´s creditors made the rules. I have yet to see their tactics identified, named; we will do so here.
Our five-point strategy would not have leveled the playing field -- it would have changed playing fields, games included.
1. On January 25, 2015, elections were held in Greece. The left-wing Syriza Party chaired by Tsipras won in stunning fashion, missing an outright majority in parliament by two seats. Tsipras defeated his conservative opponent by 8 points.
Syriza´s platform was straightforward. It pledged to renegotiate Greece´s titanic debt and to roll back austerity measures ordered by creditors in bailouts of 2010 and 2012.
Immediately following his election, Tsipras should have called for a February referendum. The referendum would have presented two questions: (1) Should Greece accept the existing bailout terms? (2) Should Greece remain in the eurozone?
The February referendum would have replaced the July 5 referendum.
The bailout terms would have been overwhelmingly rejected. The exact size of the majority is unknown; however, for reasons given below, 80% is a reasonable guess. That outcome would have reconfirmed for all to see in indisputable terms -- no ifs/buts/maybes -- that a colossal majority opposed the bailout terms then in effect. The 80% result also would have consolidated Syriza´s base vote, as well as constellated in Syriza´s direction the voters who were not in Syriza´s base but who opposed the bailout terms.
The other question in the referendum, staying in the eurozone, would have received another solid majority vote. That result would have been cheered by Greece´s conservative voters.
The upshot: a resoundingly united Greece would have entered talks with creditors.
The massive quantitative opposition to the existing bailout terms could have been converted into a game-changing, qualitative advantage for Greece. To wit:
2. There is an over-understood subtext that has framed the Greek debt discussion since Day 1. It lurks beneath the creditors´ buzzword trust. Let´s bring that subtext to the surface.
When Greece´s creditors see the word Greece, they don´t think of Plato or Plutarch, Pythagoras or Pericles; they barely know -- if at all -- who those men were. Rather, the sum of what comes to the creditors´ minds is expressed in a French song: Sea, Sex and Sun. Written and recorded by Serge Gainsbourg in 1978, it was as popular as it is lascivious.
Greeks are irresponsible deadbeats: that is the issue, according to the creditors. Greeks cannot be trusted.
Greece should have challenged -- and early -- the lazy liar subtext the creditors put in place. Tsipras could have used a tactic that is widely known among us political consultants: the substitution of issues.
Here is how the substitution would have worked:
With the massive February referendum numbers in hand, Tsipras could have addressed creditors, as well as the world, in clear straightforward terms:
The people of Greece have spoken. They overwhelmingly reject the existing bailout terms. Whatever else it may be, a democracy represents the will of the majority. In Greece, that majority is resounding, and it renders the following truth to be self-evident: for my government to accept your bailout terms would go against democracy. We cannot and will not do that. If you insist that we accept your terms, you will create an absurd play acted out before the incredulous eyes of an astonished world: due to purely financial interests, a member of the European Union is being forced by that Union to be undemocratic. That member is not just any member; it is the nation where democracy was born.
Pro-democracy or anti-democracy? That is the issue, according to Greece.
The above dialogue does what was not done by Tsipras. Unlike art, in politics you must string the beads. All of them. If you are deeply involved in government, what is obvious to you is not obvious to the general public -- I guarantee it.
Political Novice Error 1: you assume your agenda is everybody else´s. It isn´t. More on agendas shortly.
The battle to change the subtext would have been all-important, and could have been won. When forcefully presented -- which, again, Tsipras did not do -- democracy trumps the "trust" card. Here´s why:
When you are facing a more powerful opponent you must expand the arena of conflict. Boxers and their managers know that fact; the first non-financial item negotiated before a fight is the size of the ring.
In reducing the issue to "trust," Greece´s debtors shrunk the ring down to a personal moral attribute.
Greece, the weaker party, was doomed.
It should have never accepted that reduction; rather, it should have enlarged the ring as far as possible. Democracy -- a far broader theme than this or that individual´s trustworthiness in terms of he-said-that-she-said backyard-fence chatter -- if dramatically presented on the world stage would have filled the bill.
A vital distinction: we would have employed democracy to counter the "trust" subtext -- NOT the bailout terms, the text. More on this subject below.
I will say it again: he who makes the rules of the game wins the game. The rules are determined primarily by the political agenda. That agenda in turn is set by this item: what will we talk about?
For an example, look no further than the July 12th agreement dictated by the creditors. It set the agenda, what can and cannot be discussed, of the upcoming negotiations for a third bailout of Greece.
Greece´s chief adversary in the talks was Wolfgang Schäuble, Germany´s Finance Minister. 73 years old, Schäuble is one of the most experienced public figures in Europe, if not the world. He is keenly aware of what we just said about rules, the topic for discussion, the agenda. Which is not to say he cannot be beaten...
Frankly, I found nothing new in Schäuble´s tactics. They are standard operating procedure among German employers for dealing with labor unions. Hemut Naujoks, Dr. Schreiner + Partner: the playbook is available from a variety of Internet sources. P.S. Don´t forget to bring money.
We will now call that procedure what it is: mobbing.
In the workplace, mobbing
"begins when an individual becomes the target of disrespectful and harmful behavior. Through innuendo, rumors, and public discrediting, a hostile environment is created in which one individual gathers others to willingly, or unwillingly, participate in continuous malevolent actions to force a person out of the workplace."**
Armed with the nebulous, disrespectful issue of "trust," Schäuble sought to make Greece leave the eurozone. He has never left any doubt about his intention.
Mobbing is essentially a full-speed-ahead chase, a manhunt. A civilian blitzkrieg, pursuit by a mob depends entirely on gathering and maintaining momentum. The best way to break chase momentum is to toss something new and unexpected into the environment. We will return to this point.
What was the game according to Schäuble? Simply this: there was no game.
After he resigned as Finance Minister, Yanis Varoufakis gave this account of the talks:
"Schäuble was consistent throughout. His view was I’m not discussing the programme – this was accepted by the previous government and we can’t possibly allow an election to change anything. Because we have elections all the time, there are 19 of us, if every time there was an election and something changed, the contracts between us wouldn’t mean anything.´
So at that point I had to get up and say ´Well perhaps we should simply not hold elections anymore for indebted countries´, and there was no answer. The only interpretation I can give [of their view] is ´Yes, that would be a good idea, but it would be difficult to do. So you either sign on the dotted line or you are out.´”
No discussion. Sign or you are out. If those aren´t rules, what is? Note carefully that Varoufakis attempted a substitution of issues, viz., democracy for the existing bailout conditions. I believe that attempt was misplaced -- the substitution should have been democracy for trust; we, unlike Varoufakis, are looking at control of the subtext.
Greece´s tactical error of trying to counter the existing bailout conditions with democracy, incidentally, was committed early, within weeks of the January elections. After that, the error became a Tsipras administration mantra.
Tsipras and Varoufakis were to discover quickly what all relative newcomers to politics learn. Political Novice Error 2 is the failure to recognize and accept that the righteousness of your cause will get you nowhere.
Moral questions -- "trust" -- require moral answers; financial questions, financial ones. Normative prescriptions are qualitatively distinct from descriptive statements; they are of different orders.
The bailout conditions -- the text -- should have been countered with something else...
After democracy was dismissed with a wave of the hand by Schäuble -- note who was controlling what was to be discussed -- what could Greece have put on the table to supersede Germany´s a-contract-is-a-contract discussion topic?
Greece had to find something fast, otherwise, what did it have to negotiate? Democracy was not a counterweight. Neither was a threat to leave the eurozone; that exit was not in the popular mandate given in the January 25 elections.
Was there leverage somewhere that Greece could have applied -- something that would have more than balanced Germany´s contract topic of discussion and ensuing agenda/rules? That leverage had to be not only powerful, it also had to be appropriate. To repeat: a financial problem demands a financial answer -- not a quasi-moral one.
Leverage was there, right in front of everyone. We will get to it shortly.
3. Greece should have begun high level discussions with China and Russia. They would have continued for months -- no one-shot, in-and-out airplane trip. No word on the subject would be released. Politicians, press, and patricians would speculate to their heart´s content -- and discontent.
4. Greek corruption and misfeasance/nonfeasance/malfeasance (note: hereafter the latter are subsumed under corruption) undeniably played a key part in creating the Greek debt. Tsipras only timidly addressed the corruption problem.
It was a grievous mistake.
Following his election in January, Tsipras should have immediately acknowledged and resolutely confronted Greek corruption. The creditors would have universally approved, at least outwardly. Finally! Bravo!
The vast majority of European Union citizens as well as of Greeks, especially Tsipras´ leftist base voters in Syriza, also would have applauded. At last! Bravo!
Tsipras´ inaction on corruption is doubly puzzling, given who is his role model. Tsipras´ youngest son is named Ernesto, after Ernesto Che Guevara...
In the early 1950s, before he joined Fidel Castro, Guevara spent 8 months in Guatemala. The leftist government of Jacobo Arbenz was in power.
Arbenz committed a fatal political error. He failed to dismantle the Guatemalan army officer corps. With CIA assistance, it ousted him in a coup d´état in 1954.
Guevara learned a lesson he applied five years later in Cuba. Within weeks following Castro´s ouster of dictator Fulgencio Batista, 500 Batistianos were summarily tried in a sports palace and executed by firing squads under Che´s command. Adiós, corrupt ancien régime.
Say what you will about it, as a result of Guevara´s draconian measure there would be no coup after 1959. The same cannot be said for Greece; a military coup occurred in 1967. Not to be or not to be? but to clean house or not to clean house? That is the question facing every in-coming government.
We are in no way suggesting that Tsipras should have instituted firing squads. We oppose the death penalty except in extreme cases which are irrelevant to the Greek crisis. However...
Tsipras´ words against corruption would have been backed up with deeds. Throughout February and March, nightly television would have displayed a parade of bankers and ex-government officials being handcuffed, carted off in police vans. Sea, sex and sun would have been replaced by sea, sex and subpoenas.
5. From the outset, the creditors´ acclaim for the Tsipras anti-corruption drive would have been ambivalent. On the one hand, they would have been glad to see corruption attacked head-on. On the other hand, well ... who corrupted Greek officials? Curiously, in the July 12 agreement dominated by the creditors, an anti-corruption drive is nowhere on the agenda. After all, when the wheel starts spinning, who knows where the bouncing ball will drop. Paris? Rome? Frankfurt?
The creditors would not have had to endure for long the very contradiction they created. After a few weeks, when the seriousness of Tsipras´ anti-corruption fight sunk in, voilà! -- something new. A movida, as it is known in the political trade. A coup de théâtre:
Tsipras would declare that, because it was contracted by corrupt officials, Greece´s 323-billion euro debt was illegal and illegitimate. Greece was not obligated to repay it.
There it is -- the replacement for Schäuble´s position that a contract is a contract; that democracy is literally beside the point; that there is nothing to talk about; that Greece must sign or leave.
Let no one be fooled by Schäuble. Contracts are renegotiated all the time, albeit not with appeals to democracy but on a hard-line-bottom-line, economic/financial basis.
Tsipras´ declaration of Greece´s foreign debt to be illegal would have sent Greek nationalism sky-high. Among Schäuble and the creditors, the reception would have been slightly less than cordial...
Before continuing, does a declaration of the Greek debt as illegal seem, to say the least, irresponsible? Extremist, anarchist, communist? Something out of Che Guevara´s handbook? If your answer is yes, dear reader, I know somebody who disagrees with you: the United States Government.
The concept of illegal/illegitimate foreign debt -- or odious debt -- was invented by the United States. After the Spanish-American War of 1898, America refused to pay Cuba´s debt to Spain, saying it was purely a Spanish self-interest ploy in which the Cuban people had had no voice.
Our strategy would have been up and running before negotiations started. The five points and interactions among them would have created an entirely different playing field, far from the one on which Greece and its creditors clashed.
Sidebar: very early, our strategy would have made manifest numerous latent divisions among creditors.*** The Greek Government would have benefited enormously.
Case in point: an IMF statement released shortly before and reiterated after the July 12 agreement, asserted that the Greek debt was unsustainable and needed to be restructured -- a position that flies in the face of the agreement. Tsipras waved the IMF statement -- which by the way is absolutely correct in its assessment -- in the creditors´ faces, but so what? The division among the creditors appeared too late to help Greece. The rules had been dictated by Schäuble: sign or leave. Either-or.
(1) A February referendum to galvanize Greek´s populace and political agenda;
(2) the democracy-for-trust subtext substitution;
(3) closed on-going discussions with China and Russia;
(4) an all-out war on corruption;
(5) the official declaration of Greece´s foreign debt as illegal, odious.
Our five-point strategy would have allowed Greece to rule to a significant degree the negotiations, instead of being ruled by them. Greece would have acquired what is known in boxing as ring generalship. To wit:
The reigning topic for discussion, contract/contract/contract, would have been substituted by another topic: would or would not Greece´s creditors lose 323 billion euros? With that astronomical sum at risk, Schäuble´s prevailing rule of sign or leave would have been quietly and unceremoniously put to bed.
Schäuble and the creditors would have awoken to a new subtext written in Athens: We´re not merely going to take you to the cleaners. When we finish, many of you are going to be working for them.
With the declaration of the debt as illegal, odious, Greece would have had something to negotiate. The declaration would have been reinforced by the bouncing ball of investigations, indictments, prosecutions and imprisonments for corruption.
Illegal debt + war on corruption would have formed the new text. A pincer movement if there ever was one, it is only effective against an advancing force, such as a mob.
Greece could have lived its destiny instead of enduring its fate.
I fear that fate was set in concrete by the July 12 agreement. It is as onerous as it is ignominious: liberalizing the Greek labor market; privatizing (read: abducting) Greece´s profitable public assets, e.g., sea ports and electricity network; phasing out aid to poor pensioners; raising VAT taxes; "monitoring" (read: controlling) the Greek economy by eurozone finance ministers and the IMF; excluding any possibility of a debt write-off; etc.; etc.
Greece may not have been fully aware on July 12 of the seriousness of signing off on Schäuble´s new and "improved" topic/s for discussion, its accompanying agenda, its rules. We will know when talks begin for the third bailout.
Throughout the negotiations, the Tsipras Government had frequent recourse to the words humiliation and insulting. They were a surface ripple of the mobbing that was occurring down under.
We have a different word for the final outcome: rape.
Humiliation is not a crime; rape is. With the July 12 agreement, Greece enters a strange new world of legal crimes. Oligarchs know it well, for it is their world.
Key parts of our five-point strategy have historical precedents -- successful ones. See the elaboration on our strategy below.
* * *
A few concluding notes to answer readers´ questions about the July 5 referendum and its aftermath:
Tsipras held the referendum too late. Yes, it showed a majority -- 61% -- opposed the bailout conditions Greece was living under. But the referendum also showed the majority had declined precipitously. In February, a public opinion poll indicated 83% opposed the creditors´ terms. If Schäuble did not mention that fact, it was because he didn´t have to.
The public opinion consolidation measures of our strategy would have forestalled the full 20% decline in the majority. Those measures would have been carried out with full knowledge that the early overwhelming majority could not endure, that it would fray under harsh economic circumstances.
The July 5 referendum also exposed something else...
Tsipras´ post-referendum proposal to the creditors was considered a sellout by many of his supporters who demonstrated in the streets. And why not? -- his proposal contained what the people had rejected less than a week earlier. As would be expected, the even harsher agreement of July 12 is now energizing even more popular and governmental opposition. (Note of July 21. Yanis Varoufakas said today that the creditors basically were "interested in humiliating [the Tsipras] government and overthrowing it, or at least making sure that it overthrows itself in terms of its policies..." The unspoken goal of regime change made even more imperative the implementation by the Greek government of a different strategy.)
The Tsipras proposal was, of course, also rejected by Greek conservatives who viewed it as a huge loss from what Tsipras could have/should have accepted earlier, i.e., the existing bailout terms. Viewed in narrow literal terms, the contents of the July 12 agreement prove the conservatives were right.
Over, under, around and through: discontent with Tsipras is building on all sides of the political spectrum. His initial, gigantic support is splitting, flaking off. That outcome reiterates a hard political lesson I witnessed 20-30 times over several decades:
Who are you? The question becomes the order of the day whenever a political leader foregoes the fundamental principles on which he was elected. That question is so profound it gradually blots out, contaminates, everything else he says and does, no matter how sensible or legitimate it may be. The voters do not -- cannot -- hear him; they are busy looking for the next best thing.
A leader who abandons his initial principles loses his political identify. He no longer knows who he is; thus, he leaves it to the voters to tell him. Not to worry: they will do so loudly and clearly at the first real, honest opportunity: loser. European Union, take note.
Reading over the July 12 agreement, one conclusion is in order and it is nothing short of incredible. Alexis Tsipras was maneuvered into not representing the majority of the Greek people, into not being democratic.
Right now, Schäuble and Greece´s creditors -- among them IMF Director Christine Lagarde -- are cackling in their Henri IV Dudognon Heritage Cognac Grande Champagne. They should not laugh too hard, however...
Sometimes the worst punishment you can inflict on somebody is to give them what they want. Castor and Pollux, by abducting, raping and marrying the daughters of Leucippus, ignited a lethal family feud.
Did an entire country just get hit with the biggest sucker punch in history? For readers who are unfamiliar with that expression, click here for an unforgettable demonstration.
The how and why of the July 12 sucker punch:
Contrary to everything they proclaim and defame to the heavens above, international creditors such as the World Bank and the International Monetary Fund lend money not to solve economic problems but to make money for finance capitalists via debt repayments. It is just that simple.
Over and over again, the lenders´ sucker punch knocks out economically underdeveloped nations. Among other things, they are trapped into paying back money plus interest that would have/could have/should have been invested at home.
Lenders like the World Bank -- its motto is Working For A World Free of Poverty -- create expectations which are exactly the opposite of what you just read. The expectations/reality paradox forms the what of the sucker punch, i.e., a punch that is unexpected. This point needs to be developed...
Less than a decade ago, a Latin American country successfully ducked a sucker punch similar to the one that floored Greece a few days ago.
Ecuador´s President Rafael Correa, who holds a Ph.D. in economics, recently exposed the strategy and tactics of international lenders. He also noted their devastating consequences:
‘We Latinos, we are experts in crisis. We have lived through all of them and we look at Europe with a sense of worry because in Europe you are making the same mistakes as we did.
‘Let’s talk about Greece for instance. Let’s talk about all the conditions the country is submitted to: IMF packages, we Latinos we’ve been there. All those measures are not meant to overcome the crisis, they are just to liquidate the debt. On one hand they give money and funds to you, on the other hand they impose on you some harsh measures: low salaries, no allowances, mass dismissals in the public sector…it is to find the money to pay a private debt.´
‘So, at the end of the day countries are indebted with multilateral treaties. All this just to guarantee a private debt. The common people get nothing. They are not out of the crisis. We see that all this is being repeated in Europe. It means the absolute supremacy of capital over human beings on behalf of politics.´”
Here is how the international lender scam -- "bailout" is a misnomer; bail-in is what happens -- identified by Correa was played out in Greece:
"Only a small fraction of the €240bn (£170bn) total bailout money Greece received in 2010 and 2012 found its way into the government’s coffers to soften the blow of the 2008 financial crash and fund reform programmes.
Most of the money went to the banks that lent Greece funds before the crash ...
€48.2bn was used to bail out Greek banks which had been forced to take losses, weakening their ability to protect themselves and depositors.
Lastly, €140bn has been spent on paying the original debts and interest ...
Less than 10% of the bailout money was left to be used by the government for reforming its economy and safeguarding weaker members of society."
Robbing and mobbing. There is no barbarian worse than a civilized one. We will go ahead and call the international lenders what they really are: the lowest uncommon denominator.
When he took office in 2007, President Correa designated Ecuador´s $10.2 billion foreign debt (roughly 25% of his nation´s GDP) "illegal and illegitimate" because it had been contracted by and gone into the pockets of corrupt politicians and generals.
Correa practiced what he preached. Among other measures, (i) Ecuador aggressively prosecuted and sought extraditions of corrupt officials. Notable among them are the Isaias brothers, Miami-ensconced bankers wanted for misappropriating $400 million in bailout money. (ii) Correa defaulted on $3.2 billion in Ecuadorian government bonds -- over 20% of Ecuador´s foreign debt -- issued under dubious circumstances before he took office. Subsequently, he offered bond holders the chance to sell the bonds back to the Ecuadorian government at 35 cents on the dollar. Over 90% of the bonds were repurchased.****
The results of Ecuador´s overall restructuring of its foreign debt were dramatic. Debt servicing fell from 24% of the national budget in 2006 to 3.6% in 2013. Coupled with other economic measures, that reduction allowed for a drop in poverty from 37% in 2006 to 22% in 2014, according to the World Bank. During those same years, income inequality as measured by the Gini coefficient fell from 54 to 48.7.***** Public spending on infrastructure and investment programs jumped from 21% of the GDP in 2006, to 44% in 2013. Finally, per capita GDP in Ecuador rose from $3,090 in 2007 to $3,782 in 2014 -- over 20%.
It is of course easy for those who do not suffer Greece´s daily economic hardships to applaud Greek resistance to the creditors´ disastrous bailout terms. Those distant cheerleaders are not to be discounted, however, much less condemned. There is a dimension to the Greek crisis that goes beyond Greece. It involves every one of us. (Hint: it is one port of call upstream from Castor and Pollux.)
Ssshhh... Nobody is talking about it.
Our next post breaks the taboo.
Update: July 20, 2015.
In The Land of The Lowest Uncommon Denominator
Never try to teach a pig to sing. It
wastes time and annoys the pig.
-- Mark Twain --
Our post is generating more interest than anticipated. July 17 recorded a record number of visitors.
Readers are asking this question: how might Greece have handled the negotiations better?
The answer: without the five point strategy, the die was cast. Little or no constructive difference could have been made.
Because our strategy is not in place, what you are about to read is opinion, not advice. Our remarks cannot be used constructively in the upcoming negotiations over the third bailout due to all three opinion/advice criteria cited above. And, there is fourth reason...
In his account of the talks, Yanis Varoufakis cited a fundamental rule that Tspiras handed down to his leadership team. Still convinced that democracy would trump finance, Tsipras believed the July 5 referendum results would
"lead to major concessions to the [Greek] side: the meeting of the council of political leaders, with our Prime Minister accepting the premise that whatever happens, whatever the other side does, we will never respond in any way that challenges them. And essentially that means folding. … You cease to negotiate."
I did my M.A. thesis on Castro and Guevara. I can´t for the life of me find Che Guevara anywhere in a no challenge policy.
Without our five-point strategy (which can be modestly called challenging), no meaningful negotiations could be undertaken by Greece because -- I will say it again -- it had nothing to negotiate:
(i) Democracy was out, waved off early by Wolfgang Schäuble.
(ii) As for a threat to leave the eurozone, Varoufakis thought it was still in the cards, at least halfway. He favored a more "energetic approach" that pointed toward a grexit:
"Sure, sure. I never believed we should go straight to a new currency. My view was – and I put this to the government – that if they dared shut our banks down, which I considered to be an aggressive move of incredible potency, we should respond aggressively but without crossing the point of no return.
We should issue our own IOUs, or even at least announce that we’re going to issue our own euro-denominated liquidity; we should haircut the Greek 2012 bonds that the ECB held, or announce we were going to do it; and we should take control of the Bank of Greece. This was the triptych, the three things, which I thought we should respond with if the ECB shut down our banks.
… I was warning the Cabinet this was going to happen [the ECB shut our banks] for a month, in order to drag us into a humiliating agreement. When it happened – and many of my colleagues couldn’t believe it happened – my recommendation for responding ´energetically´, let’s say, was voted down."
I doubt Varoufakis´ triptych would have caused creditors to suddenly do what they had not done previously: take Greece seriously.
First, faced with the triptych, Schäuble would have simply shrugged. You want out? Then get out. As for not crossing the point of no-return, Schäuble would have called Varoufakis´ hand: You can´t vote "maybe." Are you in or out? Either-or.
Second and more importantly, the triptych was born in a coffin. Leaving the euro was not in the Greek popular mandate.
Assuming the impossible, i.e., that our five-point strategy was in place, key differences would have produced a change of, not in, the negotiations.
1. In the legislature I followed a personal code. I always began negotiations with an adversary in a civilized manner. I treated my opponent, no matter how poorly informed or uneducated, as my equal. I did unto him as I would have him do until me. That was Plan A.
To convince me I was not mistaken, the opponent had 15-20 seconds. If he failed to hit the ground running, Plan B went into effect.
Yanis Varoufakis impresses me as a gentleman and a scholar-- a college professor in economics. He addressed Schäuble and his team as if they were his equals. Here is what happened:
"You put forward an argument that you’ve really worked on – to make sure it’s logically coherent – and you’re just faced with blank stares. It is as if you haven’t spoken. What you say is independent of what they say. You might as well have sung the Swedish national anthem – you’d have got the same reply. And that’s startling, for somebody who’s used to academic debate. … The other side always engages. Well there was no engagement at all. It was not even annoyance, it was as if one had not spoken."
I can think of no clearer way than what you just read to show Varoufakis was wasting his time. Plato, Plutarch, Pythagoras, Pericles: Schäuble and the creditors not only have no idea who those men were, they could care less. Ergo, why try to discuss certain things with them? Civilized discourse was, regrettably, not in order. So much for Plan A.
Faced with blank stares, Varoufakis had no Plan B. A civilized person and determined public servant, he nevertheless forged on, through the fog.
Here is what he immediately ran into; he called it Phase 1:
"They would say we need all your data on the fiscal path on which Greek finds itself, we need all the data on state-owned enterprises. So we spent a lot of time trying to provide them with all the data and answering questionnaires and having countless meetings providing the data. The second phase was ... "
Wait a second. Stop right there. Had our five-point strategy been in place, our Plan B would have kicked in:
As requested, we would have supplied the data, answered questionnaires, held meetings. After which we would inform Schäuble: We gave you what you wanted in a timely manner. Now it is your turn to give us what we want in a timely manner.
As you know, Greece´s anti-corruption campaign is in full-swing. Hundreds of Greek nationals have been indicted, tried, sentenced. More arrests are imminent.
Our investigations generated the names of 10 German citizens who may be implicated in conflicts of interest, kickbacks and other crimes. We would appreciate full detailed information on their bank accounts, financial interests, real estate holdings and other assets.
We have a second list of persons of interest, to be supplied shortly...
Looking over the list, Wolfgang Schäuble´s mind would wobble. There, in alphabetical order, would be the names of associates, politicians, family friends.
Dear God!...the wheel...around and around...That bouncing ball...
Schäuble reads down the list; the ball stops. His intestines lurch. Wolfgang Schäuble. He reads it three times just to make sure. He asks for -- make that, he demands -- a clarification.
Oh, I´m not sure why you are on the list. I guess one of our informants...Something about KfW (Note: German state-owned bank. Schäuble is Chairman of the Supervisory Directors). Just rumors, nothing more...at this point... Nothing to get upset about. Anyway, to paraphrase what Chancellor Angela Merkel told Prime Minister Tsipras: "We´ll find a solution, don´t worry about it, I won´t let anything awful happen. Just do your homework and work with our investigators. There can be no dead end here."
Mysteriously, all further requests from Schäuble for data would have evaporated. There would be no Yanoufakis Phase 2 which we will go ahead and present anyway because it makes something important self-evident:
"The second phase was where they’d ask us what we intended to do on VAT. They would then reject our proposal but wouldn’t come up with a proposal of their own. And then, before we would get a chance to agree on VAT with them, they would shift to another issue, like privatisation. They would ask what we want to do about privatisation, we put something forward, they would reject it. Then they’d move onto another topic, like pensions, from there to product markets, from there to labour relations, from labour relations to all sorts of things right? So it was like a cat chasing its own tail."
A cat chasing it´s tail: that is a graphic description of what happens when you have zero control over the topic for discussion, the agenda, the rules. Around and around you go, in flat circles. That is especially true when your adversary is a living tautology: the game is that there is no game; a contract is a contract; sign here or ... sign here. Their conclusions are their assumptions; their assumptions, their conclusions. There is nothing to talk about and to prove it, we will talk about nothing. Welcome to Phase 2.
Form = content; function = structure; process = reality. When dealing with such one-dimensional people you are not dealing with people but confronting a syndrome. It takes the form of another triptych: Fat, Dumb, and Happy.
There is nothing like the prospect of going to prison to break up, shatter, tautological thinking. Under Plan B, when Schäuble wanted to shift from VAT to privatization, we would have handed him the second list -- smiling "since you insist": 5 Germans, 3 Frenchmen, 2 Italians. The third list would have been inches away.
A possibility: the lists of names would have a second page -- a press release dated that day. If Schäuble flatly refused to furnish the requested financial information, the press release would go out.
It would tell the truth: the creditors had refused to co-operate with Greece´s war against corruption.
Footnote, July 21. A reader asks, "What if Schäuble still refused to co-operate?"
(i) One morning the world media would be buzzing about this item from Reuters published on January 6, 2015, regarding Schäuble´s bank: "The lion´s share of German exposure [to the Greek debt] is owned by state-owned development bank KfW, with lending to the Greek state totaling 15 billion euros, banking industry group BdB said."
(ii) The Greek team would refuse to attend the negotiating session scheduled for that afternoon. Instead, they would hold a press conference. We are not boycotting the negotiations, they would explain; it is simply that we see no point in talking with a man who may be leaving soon.
*For a brief history of the Greek financial and economic crisis, click here.
**Mobbing: Emotional Abuse in The American Workplace. Three examples of mobbing by Greece´s creditors during the negotiations were given by Janis Varoufakis in an interview after he resigned as Finance Minister.
(i) A hostile environment. Regarding the possibility of an alliance of the other indebted eurozone nations (Spain, Portugal and Ireland) with Greece:
"[F]rom the very beginning those particular countries made it abundantly clear that they were the most energetic enemies of our government, from the very beginning. And the reason of course was their greatest nightmare was our success: were we to succeed in negotiating a better deal for Greece, that would of course obliterate them politically, they would have to answer to their own people why they didn’t negotiate like we were doing."
We have a different explanation of the non-alliance. Apparently a victim of previous mobbing by Schäuble, Portugal may have thrown in the towel. In 2013, former Portuguese Prime Minister José Sócrates accused Schäuble of planting anti-Portugal stories in the media in the build-up to the bailout of Portugal. That lesson, among others, would not be lost on Spain and Ireland.
(ii) Public discrediting:
"We felt, the government felt, that we couldn’t discontinue the process. Look, my suggestion from the beginning was this: This is a country that has run aground, that ran aground a long time ago. … Surely we need to reform this country – we are in agreement on this. Because time is of the essence, and because during negotiations the central bank was squeezing liquidity [on Greek banks] in order pressurise us, in order to succumb, my constant proposal to the Troika was very simple: let us agree on three or four important reforms that we agree upon, like the tax system, like VAT, and let’s implement them immediately. And you relax the restrictions on liquidity from the ECB. You want a comprehensive agreement – let’s carry on negotiating – and in the meantime let us introduce these reforms in parliament by agreement between us and you.
And they said ´No, no, no, this has to be a comprehensive review. Nothing will be implemented if you dare introduce any legislation. It will be considered unilateral action inimical to the process of reaching an agreement.´ And then of course a few months later they would leak to the media that we had not reformed the country and that we were wasting time! And so… [chuckles] we were set up, in a sense, in an important sense."
(iii) Malevolent actions:
"So by the time the liquidity almost ran out completely, and we were in default, or quasi-default, to the IMF, they introduced their proposals, which were absolutely impossible… totally non-viable and toxic. So they delayed and then came up with the kind of proposal you present to another side when you don’t want an agreement."
***When I was chief of staff for the Majority Floor Leader of a House of Representatives, time and again I was astounded by how easy it was to yank the chains of money lenders and generate self-sabotage among people who should have known better.
Our divide et impera strategy was based entirely on the lenders´ shortsighted pecuniary vision. Stated differently: no greed, no leverage; no leverage, no strategy.
A case study: year after year, our introduction of an Interstate Banking Act provoked all sorts of finger-pointing, parking lot altercations, angry phone calls, back-stabbing in the financial "community." (The hotel owners, on the contrary, loved us; their occupancy rate shot up to 100% with blurry-eyed out-of-towners with never-ending expense accounts. Bar owners, too, were overflowing with gratitude, among other things. So awash was the town in money, the infamous 5 "Monkey Girls" -- so named because everywhere they went they held hands, forming a chain (an alternative explanation of "Monkey Girls": they held onto their jobs by their tails) -- put in a return engagement.) I will never forget an enraged S&L lobbyist who had flown in from New York pounding on my desk, demanding to know how we "could do such a thing." I suggested he calm down, look on the bright side and view the Act as a lawyer and lobbyist full-employment measure. He may have thought the better of it; I never saw him again
The in-fighting came to a head when, desperately seeking unity, a Jim Bean bourbon ("Not legal without my signature") and Coca Cola-fueled reunion of contentious bank and S&L lobbyists continued into the wee hours of a subzero January morning. Shouts, scuffles, banging, stomps -- the unity meeting underwent an anticlimax without a climax preceding it when the landlord turned out the lights and shut off the gas.
****Greek government bonds play a key part in the Greek debt. Today, private investors hold 38.7 billion euros in bonds; the European Central Bank, 18 billion euros.
In response to a reader´s inquiry: I will not discuss how Greece could have used its bonds to create divisions among creditors. To do so would violate our opinion/advice policy because certain questions, e.g., give bonds a second Correista haircut (make that, shave and a haircut), remain outstanding.
*****Ecuador´s figures are the opposite of America´s. Under Obama, economic polarization has increased. The statistical proof:
Census Bureau figures (Table H-2 -- households, all races) show that the share of the national income pie going to the poorest fifth fell from 3.4% in 2008 to 3.2% in 2013, the latest year for data. During those years the share going to the richest fifth rose from 50.0% to 51.0%; for the richest 1%, from 21.5% to 22.2%. The share going to the middle three fifths -- the middle class -- fell from 46.6% to 45.8%.
We are in no way suggesting that Ecuador is a utopia. This year´s fall in the price of oil coupled with a rise in the dollar (Ecuador´s currency) caused severe fiscal problems. See our post of March 18, 2015, "Ecuador´s Fiscal Crisis: The Solution."