Negotiating in Bad Faith: Who Should Decide the Grexit?

Regan_Aidan HD“It’s your fault, you got into this mess yourself”. “No, it’s your fault, you lent us all that money”. “You need structural reforms to generate growth”. “We have a humanitarian crisis on our hands”. “This is a Greek crisis of your own making”. “No, this is a crisis of the Euro area”. “You must implement reform if you want to stay in the single currency”. “You are trying to push us out of the Euro currency”. “This is about reform”. “No, it is about economic ideas”. 

This dialogue captures the endless tit-for-tat negotiations between Greece and their creditors. It’s based around each actor playing “gotcha”, a pointless form of communication where the sole purpose is being perceived to have out maneuvered the other person, intellectually. It would be entertaining, if it weren’t so serious. Nobody is negotiating in good faith, because both sides know that very little can be achieved whilst Greece remains in the Euro.

The fundamental problem in Greece is domestic. The crisis was brought about by a collusion of private interests and a captured politicized government bureaucracy, which resulted in the pilfering of public funds, rampant tax evasion, and deterioration in the quality of publicly provided goods. From a macroeconomic perspective, the inability of EMU authorities to react to these visible Greek problems exposed a major fault line in the EMU’s design. Blame in this context is pointless. Only Greece citizens can solve the problem.

Most commentators would agree that Greece should never have entered the single currency. But it was perfectly rational for them to do so, even if Greece was never, and will never, become Finland. They benefited massively from the in-flow of capital. When this went into reverse, they were left with a massive debt problem. The rest is history. A technical default was agreed. It was not enough. More credit was provided. Maintain the Euro at all costs, declared the Troika. More debt was built up. Creditors demanded more structural and fiscal reform. Consumption collapsed. The people suffer. SYRIZA are elected.


Since being elected, SYRIZA have continued to make unrealistic demands, in full knowledge that they cannot deliver their anti-austerity electoral manifesto in a stateless currency. Euro creditors continue the mantra of structural reform (on the naïve assumption that Athens will develop the equivalent of the Silicon Docks overnight). Unemployment rises. Bank deposits disappear. There is no export economy. Just a failed state. Nobody takes anybody seriously. Creditors look down on Greece as an unruly child. The Greeks look to their creditors as an authoritarian father.

The negotiating game continues. Follow the rules. Implement the rules. Denial. Accusations. Broken promises. Diplomats and officials in well-kept ties bemoan that the Greeks are rude, arrogant, and dismissive. Shock, horror. Almost 60 percent youth unemployment, and they can barely belief their treatment. The Irish were so pleasant. SYRIZA officials laugh at the unsettled atmosphere they create. Backslapping each other as comrades in war. Good enough for them, Lafazanis declares. No pasaran. Deadlock. No policies.

Nobody is negotiating in good faith. Everybody knows the problem cannot be solved whilst Greece remains in the Euro area. This is more obvious than ever before. The only political actors saying this publicly are the hard-left Trotskyite faction of the SYRIZA coalition. The fear of contagion has gone. Euro negotiators know this. Germany knows this. National leaders know this. Coalesce behind Germany is the strategy. The political will to keep Greece in the club is gone. Keep making more unrealistic demands. Reform. Run faster. Train harder. “It’s a technical solution”. “It’s a straitjacket”. Blame, blame.

SYRIZA have overplayed their hand. They have no coalition partners around the table. They cannot call Germany’s bluff and they cannot make a credible threat to unilaterally default and leave. Everyone is happy to see them go. The ECB has the fire power to deal with the potential contagion. SYRIZA are isolated. Let’s call Putin. This will send a signal of our ammunition. Capital controls. Default. Exit. It’s all a politics of “gotcha”. Politicians rise from one ambition to another. They seek to secure themselves from attack, and attack each other. In negotiations of bad faith, it is a double pleasure to deceive the deceiver. €7.2bn and technical reforms. It’s just buying time. Expensive time.

The promise given was a necessity of the past. The word broken is a necessity of the present. Machiavelli said that. And he was right.

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