Repeating Games

Repetitive games come with learning. Unlike previous Greek governments the Syriza-led coalition seems not willing to easily buckle to the offers- demands from its creditors. The Greek governments seem have to carefully studied the infamous cases of Cyprus and Ireland where the ECB and the European Commission as well as some governmemts put an enormous pressure on governments to hunker under the crisis management tent of the Troika. The ‘last offer’ worked out in principle a few days ago in Berlin may – as far as has been leaked – be a softer round of austerity then initially demanded in order to access the last installment of Euro 7.2 billion of the bail-out program. Still, austerity it would be. Moreover, the designed path for a primary budget surplus over the next three years may be a bit smoother but still would ask for a surplus that the Greek political economy can’t generate without further destroying the social fabric.

The decision to give the Euro 300 mio payment to the IMF a pass and to bundle June’s payments to the IMF (Euro 1.5 bn) for end of the month, is not more then a promise. This move is smart in the sense that it makes use of a seldom used IMF rule but then again it does not solve the underlying problems. More time only helps if there is a positive expectation that the creditors may not only soften their ‘last offer’ but actually may come up with a framework that would breath some new air into the economic-political lungs of Greece. In the meantime Tsirpas needs to deal with his homefront where a strong but still minority of his MPs demand a strict NO to the offers of the Institutions. Moreover, he needs to listen and correctly interpret the vopices of the electorate.

Generally spoken, the problem is easy to describe. As soon as the costs of staying in the Eurozone are higher as the benefits to be a member of the Eurozone , it is rational to leave. The problem, though, is that ‘benefits’ and ‘costs’ are not easily to determine. Moreover, such a calculus needs not only be done on the side of Greece but also on the side of the Eurozone: If the costs of keeping Greece in the zone are higher then the costs occured by a Greek exit, then the EU should stop further negotiations. The same problem of quantification holds. Only to illustrate the problem. The artgument has been made that thge Eurozone as well as private actors are today much better equipped to deal with the economic fall out of a Grexit. Given the irrational character of financial markets, one should not automatically count on that argument. Still, even if we assume that it holds there is the question what Grexit woulkd imply for the overall assessment of the Eurozone. It seems to be safe to think that the once irreversible currency union now will be seen as a fixed but  reversible agreement. This will change the whole character of the monetary union, and open a wide space for future financial speculation attacks. This can be seen as a high cost, and thus the expectation that the EU will do much more then currently offered to keep Greece in the Eurozone. But then again, political-economic expertise is in scare supply on the side of the creditor camp where legal experts dominate.

The Greek case demonstrates that the crisis management of the EU and the European Council is a failure from the very start. It would need a unheard of level of political rationality, and thus of learning to turn around this practice. Running from band-aid to band-aid doeds not speak of the quality of economic governance. And yet, it would be foolish to turn the whole responsibility to the EU. The Greek case  demonstrates that even a non-orthodox government is not really willing to tackle the deeply entrenched problems of the political-economic regime. Rather then coming up from the very start with a comprehensive economic and political reform plan that would use the electoral victory to fight the ‘deep state’ and its political-social supporters, Syriza opted for the blame game.  We will see whether the EU and the creditors can play this game more successful then a debtor who seems to have lost also the moral support of his co-debtors of the Eurozone. Uphill battles are difficult but not impossible to win.