More Lessons from the Greek Bailout

The last tango in Europe …

Late last night, The European leaders unanimously agreed on a package of 82-86 billion euros over three years in exchange for some tough conditions: privatization of certain sectors, elimination of the “baby” pensions, increase in sales taxes, modernization of the justice system, and so on. In exchange, some debt relief was agreed to, not in the nominal part of the debt, but in its interest rate and timeline.

The package is conditional on the approval by the Greek Parliament by this Wednesday. It took a marathon session to conclude the agreement. Greece was facing a shortfall in its cash and the possible exit from the Euro Zone by the end of the month for failure to make payments due to its creditors.

Greek Prime Minister Tsipras has now the onerous task to convince Parliament members to adopt the strong medicine dictated by the accord. It will be a hard sell. Members of Tsipras own party (Syriza) have already voiced opposition. Other MPs have uttered harsh words: humiliation, surrender, etc. So the Greek tragedy has not yet ended.

European leaders, led by German Chancellor Angela Merkel, stood tough after losing faith in Tsipras and his bombastic Finance Minister Varoufakis, who had antagonized his counterparts with his radical approach and vitriol. They were miffed in particular when Tsipras walked out from negotiations on June 29^th and hastily called a consultative referendum on the bailout terms and conditions. 

Sixty-one percent of the Greek voters voted Oxi (no) at the urging of Tsipras and his government, hoping that such vote would empower Tsipras to get a better deal. In his gamble, Tsipras and his government lost the trust of most European leaders, in particular Germany's and the North and Central European nations'. 

Varoufakis’ resignation did little to change a ruptured relationship. Trust is easy to lose, and very hard to regain, we have learned over the years.

The prophecy of many …

As many predicted, including little old me, the whole affair would turn out to be a classic Pyrrhic victory. Rather than getting better terms, the new bailout turns out to be much harsher, not just in financial terms, but also in lost sovereignty. Rather than concluding the bailout in 48 hours as predicted by Varoufakis, the deal took much longer to reach. A famous saying by professional poker players is: Know when to hold them, know when to fold them. European leaders called the Greek bluff and they won.

More lessons learned …

·      While politicians continue to play the fiddle, the population pays the price. Many older folks on fixed income will feel the pinch. Many unemployed people, especially the young, will continue to live a precarious existence. Many businesses will be hampered by the increased cost of doing business.

·      Radical, far left rhetoric might sound great, but often it has no clothes. If it sounds to be too good, it usually is not. There are economic laws that cannot be repealed with slogans.

·      Arrogance is a vice, not a virtue. Beggars, we say, cannot be choosers, as the Greeks might have learned. Humility is not a sign of weakness, but a sign of maturity and good sense.

·      Negotiations are most difficult when the parties involved do not trust one another, impugn each other’s intentions, and are driven by the win-lose.

·      I am sure that you, the reader, can add to the list.

Closing

I spent a great week in Athens and the island of Hydra last month. It was a great week. I love the Greeks and their love of life. I love Greece's beauty and great history. I did, however, see a suffering nation, burdened by economic excesses and past populist policies. 

The radical, leftist Syriza duped the electorate last January by vowing to negotiate an end to the five-year austerity program. In the process it killed a small, but steady progress, and, in my view, made things much worse. 

Syriza’s victory was celebrated by other leftist parties in Europe, and raised hope in Italy and Spain, in particular, that you can vote austerity out without consequences.  I call this Fool’s Gold! Many buy it!

Your view ? …..