Greece: The Game Is On Again
Frances Coppola , CONTRIBUTOR
I write about banking, finance and economics.
The Greek crisis is like a volcano. It blows its top for a few weeks, then the fire and brimstone die down and everything goes quiet. But it is not extinct, merely dormant. There are persistent rumblings beneath the surface, and every now and then a minor eruption. As long as the stresses and strains between the protagonists remain unresolved, the psychological game underlying the Greek crisis will never end.
For the protagonists in this brutal game, understanding the psychological framing can be essential for survival. Yet even game theory experts can get this badly wrong. In 2015, Yanis Varoufakis tried to renegotiate the terms of the Greek bailout. He expected his peers in the Eurogroup to treat him as an equal. But they were expecting a repentant supplicant. Greece had sinned, it was receiving just punishment for its sins, and who did Varoufakis think he was, coming along and telling them that the treatment Greece was receiving was unjust and counterproductive? This misunderstanding made a bad situation far worse. It led eventually to Greece’s near-expulsion from the Euro and the breaking of Alexis Tsipras. And, of course, to Varoufakis’s resignation.
Now it is the IMF’s turn to misread the psychological framing. This is not a four-handed poker game, it is a duel to the death. And it is not really about Greece. The surface conflict is between Greece and its creditors, but the underlying power struggle is between the German-led creditor bloc and the European Commission. The eventual outcome will determine the shape of the Eurozone, and indeed the whole EU, in the future.
Neither the Greek government nor the European Commission want the IMF involved. The only reason the IMF is still involved is that the creditors want it to be. And the reason the creditors want the IMF involved is that they do not trust the Commission to deliver the harsh penance they have prescribed for Greece. The IMF has been cast in the role of creditors’ second.
Unfortunately, this is not how the IMF sees itself. It is still trying to act as a neutral broker, crafting a deal acceptable to both sides. It has repeatedly called for substantial debt relief, and has also demanded deep reforms to the Greek economy. But because it is no longer perceived as neutral, its call for debt relief is ignored while its reform initiative is inevitably seen as a disguised demand for more austerity.
On December 12th, 2016, the long-standing tension between the Greek government and the IMF surfaced in an angry exchange.
The IMF’s Chief Economist, Maurice Obstfeld, and the director of its European department, Poul Thomsen, published a blogpost under the title “The IMF is not asking Greece for more austerity”. The purpose of the post was to counter growing criticism that the IMF was demanding more austerity in return for debt relief. The writers insisted that the IMF was not demanding more austerity, it was just pointing out that unless there was substantial debt relief, more austerity would be needed to meet the fiscal targets agreed with the creditors. And they added that the austerity needed to meet those targets would be harsh and counterproductive.
Thus far, their piece was not unfriendly to Greece. But they then went on to reiterate the IMF’s long-standing view that Greece’s tax and pension systems need fundamental reform:
Greece cannot modernize its economy by boosting funding for infrastructure and well-targeted social programs while exempting more than half of households from income taxes and paying public pensions at the level of the richest European countries....