tag:theconversation.com,2011:/es/topics/alexis-tsipras-14278/articlesAlexis Tsipras – The Conversation2019-07-09T16:33:24Ztag:theconversation.com,2011:article/1200292019-07-09T16:33:24Z2019-07-09T16:33:24ZWhat victory for Kyriakos Mitsotakis means for Greece’s relationship with the EU<p>Victory for the centre-right New Democracy party in Greece’s July 7 elections brought to an end four years in power for the radical Syriza government of prime minister Alexis Tsipras, marked by turbulent relations with the EU. But what does the victory for New Democracy leader Kyriakos Mitsotakis mean for Greece’s relationship with the EU, and does it signal the country’s return to the European mainstream? </p>
<p>Since it came to power in Greece in 2015, Syriza maintained a steady path of austerity, despite promising the opposite. It signed <a href="https://fortune.com/2016/06/03/greece-eurozone/">an additional bailout agreement</a> with the EU and deepened cuts in welfare, pensions and the public sector. Nonetheless, it also insisted on shifting the blame for Greece’s predicament onto the EU. </p>
<p>In August 2018, <a href="https://www.reuters.com/article/us-eurozone-greece-bailout-tsipras/tsipras-declares-day-of-liberation-after-greece-exits-bailout-idUSKCN1L60PX">Tsipras declared Greece’s exit</a> from bailout supervision, but the country remains bound by an agreement to complete reforms and sustain a direction of fiscal discipline. Greek voters’ disappointment with Syriza continued, leading to a <a href="https://www.bbc.co.uk/news/world-europe-48420697">landslide victory</a> for the centre-right New Democracy party in the European parliamentary elections in May.</p>
<p>Tsipras called a <a href="https://www.ft.com/content/e9d234c6-8ba4-11e9-a24d-b42f641eca37">snap election</a> for July 7 as the ultimate political solution. The result brought the centre-right New Democracy back to power with an <a href="http://www.ekathimerini.com/242311/article/ekathimerini/news/tsipras-concedes-defeat-in-election">overall parliamentary majority</a>. But the road ahead is rocky for Mitsotakis. </p>
<p>The new government has a short grace period both domestically and with the EU. Despite Greek calls to postpone discussing the economy’s progress at a Eurogroup meeting of ministers on <a href="https://www.consilium.europa.eu/en/press/press-releases/2019/07/08/remarks-by-mario-centeno-following-the-eurogroup-meeting-of-8-july-2019/">July 8</a> because of the elections, Greece remained on the agenda. Europe is clearly continuing to monitor the Greek economy’s performance closely. </p>
<p>At the same time, New Democracy promised to introduce a number of tax cuts, increase foreign investment flows and make further reforms to the public sector. Tax cuts require savings to be found elsewhere, and that means Mitsotakis is likely to follow an austerity agenda too. But he must remember that the Greek electorate punished Tsipras for doing just this, and voters have now placed significant hopes on new leadership and a new direction. Mitsotakis will have to perform a balancing act between delivering on his promises and satisfying the EU – but he has little time to act, as both the EU and the Greek electorate want quick results. </p>
<h2>Austerity repackaged</h2>
<p>Since 2010, Greece’s reputation within the EU has been heavily scarred by the financial crisis and the bailout agreements. Seen as a pariah state and a peripheral country, its negotiating capacity diminished alongside its ability to project its national interests within Europe. Brussels may see new opportunities for a strong centre-right government to push a fresh austerity agenda.</p>
<p>Mitsotakis certainly has allies at the European level. The newly configured European institutions means he is surrounded by friendly political actors, ideologically aligned with his centre-right policy platform of stability. </p>
<p>While the EU need not worry about a U-turn in public policy in Greece, a prolonged agenda of stability – essentially a codename with which to reframe austerity – could bear significant political cost to New Democracy. As minister of administrative reform between 2013-15, Mitsotakis was linked to a number of important public sector reforms included in the previous Greek bailout packages, and he will carry that legacy with him during his term as prime minister.</p>
<h2>Repositioning Greece within the EU</h2>
<p>Beyond the economy, Greece has three more burning issues to consider in the context of its European relationship.</p>
<p>The first surrounds migration flows and refugees. The rise of far-right party Golden Dawn in the past pushed New Democracy further to the right on some issues, such as migration. Some less hardcore Golden Dawn supporters may have also been attracted to New Democracy by its promise for stronger immigration control and border security. Delivering on that promise will require further cooperation with the EU, including financial help to accommodate refugees on Greek soil. Given the current views on immigration in Europe, including those of New Democracy’s <a href="https://www.eppgroup.eu/newsroom/publications/position-paper-on-migration">sister parties</a> at EU level, which have become increasingly conservative when it comes to border policy, this presents another challenge ahead.</p>
<p>The second issue is over North Macedonia. Tsipras was credited by Brussels with the successful completion of the 2018 Prespa agreement, in which Greece recognised its neighbouring country’s <a href="https://www.dw.com/en/north-macedonia-name-change-both-heals-and-divides/a-48194331-0">name as North Macedonia</a>. The deal was opposed by New Democracy and it cost Tsipras votes in the north of Greece. The normalisation of relations with North Macedonia, and the implementation of other aspects of the agreement, remain a challenge for a patriotically oriented party such as New Democracy, which may not attempt to stir matters further.</p>
<p>Third is the issue of Turkey and Cyprus. Tsipras left Greek-Turkish relations in a state of brinkmanship over the exploitation of gas and oil fields in the seabed south of Cyprus. While European companies were tasked with drilling in these fields, the Turkish president, Recep Tayyip Erdoğan, questioned Greek sovereignty and international sea borders. Yet, he was the first foreign leader to <a href="https://www.aa.com.tr/en/politics/turkish-president-congratulates-greek-premier-elect/1525663">congratulate Mitsotakis</a> on his victory, which could signal a new period of rapprochement.</p>
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<a href="https://theconversation.com/cyprus-dangerous-row-over-gas-exploration-dates-back-to-british-colonial-meddling-119331">Cyprus: dangerous row over gas exploration dates back to British colonial meddling</a>
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<p>Political analysts should not be quick to dismiss left-wing populism altogether in Greece. As <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/jcms.12093">research</a> my colleagues and I have done has demonstrated, populism is widespread across the spectrum of Greek political parties. Syriza’s vote percentage will allow it to use its well-tested left-wing populist strategy in opposition to the new government, which could prompt New Democracy to respond with right-wing populism. </p>
<p>This strategy is likely to involve wooing political elements who are less prone to domestic reform, and could put New Democracy at odds with its own European agenda. So while Europe hopes for change in Greek politics, politics in Greece may not have changed after all.</p><img src="https://counter.theconversation.com/content/120029/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Theofanis Exadaktylos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The road ahead remains rocky for Greece’s newly elected prime minister.Theofanis Exadaktylos, Senior Lecturer in European Politics, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1200302019-07-09T12:14:25Z2019-07-09T12:14:25ZGreece: victory for New Democracy signals the beginning of the end of the crisis<p>As polls closed in Greece on July 7, with pollsters predicting a <a href="https://uk.reuters.com/article/uk-greece-election/conservative-leader-mitsotakis-becomes-greek-pm-picks-cabinet-idUKKCN1U31AQ">convincing victory </a> for the centre-right New Democracy and a defeat for the left-wing Syriza government of Alexis Tsipras, an unusual sense of calm prevailed across the country. Rarely has a Greek election night been so quiet. </p>
<p>New Democracy’s incoming prime minister, Kyriakos Mitsotakis, went out of his way to unite and manage expectations. His supporters were just relieved to have ousted Tsipras. Tsipras himself looked relieved, having managed to reverse his party’s losses at the recent European Parliament elections, to win a respectable 31.5% of the vote, which will allow him to remain as a strong second pole in the system. With 39.9% of the vote, New Democracy <a href="http://www.ekathimerini.com/242324/article/ekathimerini/news/table-nd-wins-greek-election-official-results">will have 158 seats</a> in the Greek parliament, an outright majority.</p>
<p>Smaller parties all put on a happy face for their own internal reasons, with the exception of the neo-Nazi Golden Dawn, which failed to pass the 3% threshold to elect MPs. It looked as if Greece had finally attained what it had been desperately seeking for one long decade: a sense of normalcy.</p>
<p>Exactly ten years ago, in the summer of 2009, the first signs that Greece was in economic trouble started to become apparent. As the markets’ confidence in Greek bonds collapsed, the government turned to the European Union and the International Monetary Fund (IMF). Within weeks it had entered a vortex of excruciating negotiations, conditional bailouts and tough austerity measures that went on and on. To an extent these are still going on and, in different forms, are expected to go on for much of the 21st century. </p>
<p>It’s hard to overstate <a href="https://www.palgrave.com/gp/book/9781137369222">the impact of the crisis and austerity</a> on Greek society. Beyond the obvious effects – unemployment reaching 25%, hundreds of thousands of mostly young and well-educated people leaving the country to seek employment abroad, pensions and public services facing severe cuts – the political system was rattled. One of the two main pillars of the post-1974 system, the centre-left PASOK, collapsed. Far right parties such as Golden Dawn and the xenophobic, homophobic Independent Greeks – entered parliament. </p>
<p>The crisis has been the single biggest challenge to Greece’s survival since World War II. Its root causes, the way Greeks were stereotyped in the world’s media, and the way lenders and successive Greek governments designed and implemented austerity measures, all became sources of <a href="https://www.tandfonline.com/doi/abs/10.1080/0803706x.2018.1523558">collective shame and humiliation</a>. This in turn polarised a political culture that has been historically prone to bouts of instability and violence. </p>
<h2>Rise of violence</h2>
<p>Tsipras weaponised and normalised this populist narrative of victimhood, pitting the “innocent people” against “the corrupt elites”, including Greece’s EU partners and lenders. As I have shown in <a href="https://journals.sagepub.com/doi/abs/10.1111/1467-9248.12079">my research</a>, this narrative was also used by far-left radical groups to justify revenge and aggression. </p>
<p><a href="http://www.lse.ac.uk/Hellenic-Observatory/Assets/Documents/Research/New-Research-Programme/Low-intensity-violence-in-crisis-ridden-Greece-Policy-Brief.pdf">Political violence tripled</a> between 2008 and 2018. Far-left violence was 3.5 times bigger in scale than far-right violence, which itself soared. Low-level incidents are a daily occurrence with thousands of them having taken place during the decade of the crisis, especially before Syriza got into power. Radicalisation and extremism have been particularly prominent among young people. While many are politically apathetic, those who do engage tend to do so in radical ways. Golden Dawn drew most of its supporters from the 18-25 age group, while Syriza has consistently topped the polls in that group. </p>
<p>The January and September 2015 victories of Syriza, which governed in alliance with the Independent Greeks, acted as pressure valves that allowed Greek society to vent a lot of its anger and frustration. That radicalism, which was such a prominent element of Greek political culture during the first period of the crisis, gradually ran out of steam.</p>
<p>From January to June 2015, Yanis Varoufakis, the flamboyant poster boy of the “Caviar left”, led <a href="https://www.amazon.com/Last-Bluff-Greece-financial-catastrophe-ebook/dp/B07SXCRNZB">catastrophic and slightly surreal negotiations</a> with EU and IMF lenders. These ended up costing Greece billions of euros, triggered a bank run and capital controls, caused it to default on its debts to the IMF and brought it within hours of exiting the Eurozone. Eventually, Tsipras did a U-turn and, in late 2015 began implementing all of the lenders’ requests, effectively showing that there really was no alternative to austerity.</p>
<h2>Mitsotakis’s moment</h2>
<p>Since being elected leader of New Democracy in 2016, Mitsotakis worked hard to renew his party. In the space of three years, he managed to turn an out of touch, old-school, conservative party into a modern, liberal, social media savvy electoral machine. While banking on his image as a well-educated and professionally successful technocrat who will cut taxes and facilitate foreign direct investment, he also placed strategic emphasis on the youth vote.</p>
<p>He voted in favour of civil partnerships for same-sex couples and spent time meeting with drug addicts in rough parts of Athens. He also carried out a radical renewal of New Democracy’s parliamentary candidates and party workers, promoting many people in their 20s, 30s and 40s. In doing so, he managed to build up support in the crucial 18-24 demographic, reaching <a href="https://www.thetoc.gr/politiki/article/pws-psifisan-neoi-suntaksiouxoi-dimosioi--idiwtikoi-upalliloi">27%-30%</a> in the recent elections, and so ending Syriza’s monopoly on the youth vote.</p>
<p>Whether Greece has really entered a new era of normalcy will become apparent fairly soon. One of the first moves Mitsotakis <a href="https://www.naftemporiki.gr/story/1405470/mitsotakis-current-asylum-law-for-greek-universities-will-be-scrapped">pledged to take</a> is to scrap the so-called “asylum” law, which forbids police from entering university premises. As a result of the law, urban university campuses <a href="http://www.ekathimerini.com/222966/article/ekathimerini/news/lawlessness-gripping-greek-university-campuses">have become hotspots</a> of crime, vandalism, drug-dealing and anarchist propaganda and public opinion has recently shifted in favour of taking action. However, far-left groups still carry street credit in universities and in the urban pocket of Exarchia in downtown Athens, where law-and-order has completely collapsed. </p>
<p>On election day in Greece, <a href="http://www.ekathimerini.com/242329/article/ekathimerini/news/anarchist-group-claims-responsibility-for-stolen-ballot-box">the only incident</a> that broke the peaceful hum of post-election dinner parties took place there: a previously unknown anarchist group stole and burnt a ballot box, threatened electoral clerks and threw tear gas. What happens at Exarchia over the next few months – whether and how the government decides to enforce the law and how young people and wider society react – will be the best indicator of whether Greece has truly turned the page.</p><img src="https://counter.theconversation.com/content/120030/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Roman Gerodimos has received funding from the Independent Social Research Foundation (ISRF) for a residential workshop on shame and political violence in Greece. He is founder and former convenor (2004-2017) of the Greek Politics Specialist Group of the UK's Political Studies Association, and has been a member of New Democracy in Greece since December 2015.</span></em></p>Ten years after the onset of Greece’s biggest crisis since World War II, radical populism is running out of steam.Roman Gerodimos, Associate Professor of Global Current Affairs, Bournemouth UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/907082018-01-30T16:03:05Z2018-01-30T16:03:05ZWho gets to use the name ‘Macedonia’? A decades-old row still to be resolved<p>In the latest volley of a long-running dispute on the right to the name “Macedonia”, an estimated 300,000 Macedonian Greeks rallied in Thessaloniki on January 21 against the use of the name by the country to their north, whose constitutional name is the Republic of Macedonia. A follow-up demonstration in Athens is planned for February 4. The sheer size of the crowds and the strength of feeling on display makes plain that the row is very much ongoing – and after <a href="https://www.amazon.co.uk/Stillborn-Republic-Coalitions-Strategies-Mavrogordatos/dp/B01K92XDSY/ref=sr_1_1?ie=UTF8&qid=1516814996&sr=8-1&keywords=stillborn+republic">decades</a> of <a href="https://www.amazon.co.uk/Macedonia-Macedonians-History-Studies-Nationalities/dp/0817948813/ref=asap_bc?ie=UTF8">rancour</a>, it’s time to bring it to an end in sight. </p>
<p>Much of the naming dispute <a href="http://www.sup.org/books/title/?id=21483">comes down to history</a>. The Greeks arrived in the region in the 12th century BC, and the Hellenic cities forged ties with the <a href="https://www.amazon.co.uk/History-Macedonia-Historical-Geography-Prehistory/dp/0198142943/ref=sr_1_3?ie=UTF8&qid=1516813299&sr=8-3&keywords=hammond+macedonia">ancient Macedonian kingdom there</a> long before the Slavs arrived in the <a href="https://www.amazon.co.uk/Macedonia-Macedonians-History-Studies-Nationalities/dp/0817948821/ref=sr_1_1?s=books&ie=UTF8&qid=1516813370&sr=1-1&keywords=rossos+macedonia">seventh century AD</a>. While Macedonia hosted many different cultures for centuries, its inhabitants considered themselves “Macedonians” – and since <a href="https://www.amazon.co.uk/Balkans-since-1453-L-S-Stavrianos/dp/1850655510/ref=sr_1_4/258-4198663-4312348?s=books&ie=UTF8&qid=1516813092&sr=1-4&refinements=p_27%3AStavrianos">Ottoman times</a>, they have generally used that term for themselves regardless of language or national affiliation. At the heart of the argument is whether any one of the Balkans’ ethnic groups should monopolise Macedonia’s heritage or whether the name could be constructively shared by everyone in the region.</p>
<p>Today, <a href="http://www.ekathimerini.com/224977/article/ekathimerini/news/nimetz-term-macedonia-to-be-included-in-name-proposa">more than 100 countries recognise Greece’s northern neighbour as the Republic of Macedonia</a>, so until recently, its leaders had no incentive to compromise on the issue. But now they are intent on joining both the EU and NATO – and in both cases, Greece would have to consent as a member state. The prospect that the republic could join is much welcomed in the West as a way of <a href="https://www.theguardian.com/world/2017/jun/13/macedonias-nato-hopes-rise-as-deal-with-greece-looks-feasible">limiting Russia’s influence</a>, so the impetus to resolve the dispute has at last been renewed.</p>
<p>International mediators have fumbled several opportunities to solve this problem. Their last best chance was before the financial calamity of 2008, when Greece had <a href="https://www.euractiv.com/section/enlargement/news/greek-fm-says-athens-is-not-under-pressure-to-resolve-the-name-dispute-with-skopje/">moderate leaders</a> willing to normalise the country’s foreign relations. Now, Greece is still struggling to recover from a decade-long financial crisis, and the government led by Prime Minister Alexis Tsipras lacks the time and energy for peace initiatives.</p>
<p>And as the post-2008 Greek financial tragedy illustrates, latent crises have a way of resurfacing at the least amenable moments, and any solution, of course, is neither obvious nor simple. South-east Europe is rife with unresolved <a href="http://www.universitypressscholarship.com/view/10.11126/stanford/9780804794084.001.0001/upso-9780804794084">foreign policy and minority issues</a>, and not since the wars of the 1990s has this region been more fragile. </p>
<p>Yet even in the endlessly fraught Balkans, a skillful enough politician can turn a crisis into an opportunity.</p>
<h2>Balance of power</h2>
<p>Alexis Tsipras rules Greece in coalition with the right-wing Independent Greeks, who are <a href="http://greece.greekreporter.com/2018/01/11/kammenos-says-anel-could-call-political-leaders-meeting-if-they-disagree-with-fyrom-name/">likely to oppose any sort of compromise</a> over the name “Macedonia”. But Tsipras is not as weak as some in the foreign media seem to think. A compromise will secure the solid support of his party, and at minimum, one of Greece’s <a href="http://www.kathimerini.gr/945187/article/epikairothta/politikh/8eodwrakhs-gia-skopiano-ektos-pragmatikothtas-onomasia-xwris-ton-oro-makedonia%22%22">more liberal parties</a>, therefore contributing to a constructive realignment in Greek politics. </p>
<p>And as a keen tactician, Tsipras will have an eye on both the tangible benefits of NATO enlargement and the ebb and flow of national sentiment – particularly in Greek Macedonia, where the issue is most strongly felt.</p>
<p>Macedonian Greeks overwhelmingly consider the ancient Macedonian heritage an integral part of their own culture, <a href="http://voria.gr/article/erevna-ochi-tis-vorias-elladas-sti-chrisi-tis-lexis-makedonia">and oppose any use of the name (</a> by the neighbouring republic. Greek Macedonia holds disproportionate sway over the government in Athens, and in recent decades the naming issue <a href="http://www.lse.ac.uk/europeanInstitute/research/hellenicObservatory/pdf/2nd_Symposium/Spyridon_Kotsovilis_paper.pdf">has even decided national elections</a>. The region is in fact larger in population and area than its sovereign neighbour to the north – yet it has no formal voice in the two countries’ negotiations. </p>
<p><a href="https://www.jstor.org/stable/j.ctt198930g">Unlike fellow EU members</a>, Greece is a highly centralised state. One could imagine new devolved structures in the future and a “Republic of Macedonia” within Greece itself, with its own parliament and local administration. But in the absence of devolved structures, Tsipras himself has to convince his electorate and Greek Macedonians that an agreement will secure their own use of the name and cultural heritage. There must be grassroots efforts to bring together municipal and civic leaders and investigate confidence-building measures, such as a common travel area in the Balkans. To safeguard local legitimacy, Tsipras should avoid <a href="https://www.opendemocracy.net/can-europe-make-it/alex-sakalis/greferendum">another risky national referendum</a> and seek instead a “double majority” approval in the Greek parliament, wherein a majority of Greek Macedonian MPs would have to back any decision. </p>
<h2>The other side</h2>
<p>Meanwhile, north of the border in the capital, Skopje, PM Zoran Zaev’s new moderate government is now confronting the nationalism of its predecessors, who used the past decade mostly to enrich themselves and construct replicas of ancient Macedonian monuments in Skopje. The <a href="https://www.theguardian.com/world/2011/aug/14/alexander-great-macedonia-warrior-horse">giant bronze statue of Alexander the Great</a> erected in the centre of the city in 2011 was always going to lose the country friends and sympathy, but more importantly, it drove divisions and raised unrealistic expectations among the republic’s citizens.</p>
<p>UN lead negotiator Matthew Nimetz has suggested options using the Slavic pronunciation of the term – such as Republika Nova Makedonija and Republika Makedonija (Skopje) – but so far, these proposals seem unpalatable for both sides. A third more imaginative option would be to embrace a name that reflects the country’s recent achievements as a multi-ethnic society following the 2001 peace agreement with its Albanian minority.</p>
<p>The government in Skopje has taken on another challenge by committing to a referendum after reaching an agreement with Greece. As recent events in <a href="https://www.routledge.com/Mediating-Power-Sharing-Devolution-and-Consociationalism-in-Deeply-Divided/Cochrane-Loizides-Bodson/p/book/9780815370178">Cyprus, Colombia, and the UK</a> prove, referendums <a href="http://edition.cnn.com/2016/10/03/politics/referendum-colombia-brexit-surprise/index.html">do not have the best record</a> of resolving complex problems. Yet to Zaev’s advantage, Albanian Macedonians, comprising about a quarter of the population, are likely either vote overwhelmingly in favour of the compromise or – depending on the framing of the question – abstain. Either would make it very difficult for those opposing the agreement to reach the <a href="https://en.wikipedia.org/wiki/Macedonian_autonomy_referendum,_2004">50% threshold required</a>. </p>
<p>Still, while Zaev <a href="http://www.novinite.com/articles/187435/Zoran+Zaev%3A+The+Referendum+About+the+Name+is+not+Anything+Tragic%2C+Frightnening+or+Impossible">described the referendum</a> as a guarantee to Greece that the agreement will be permanent, some parts of any agreement might also require a two-thirds approval in parliament, which his government cannot as yet command. </p>
<p>There are plenty of outside players who can help nudge the process forward, be they the EU with the prospect of full membership or the UN with its mediating role. But ultimately, this problem can only be solved if the leaders whose careers ride on the outcome can show the political and diplomatic skill required of them.</p><img src="https://counter.theconversation.com/content/90708/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Neophytos Loizides does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A giant rally in Thessaloniki and another in Athens show the strength of feeling in Greek Macedonia – and all over a country’s name.Neophytos Loizides, Professor in International Conflict Analysis, University of KentLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/519052016-01-19T19:33:13Z2016-01-19T19:33:13ZTrendy electoral superheroes: from the Americas to Europe, the populists confront us<p>A bizarre breed of electoral superheroes is emerging across the political landscape: the populists. Win or lose, they are competing and advancing. </p>
<p>The populist breed is not a media invention or effect; they have been around for decades in Western politics. Although they sometimes rise, sometimes fade, and their antagonistic identity politics and appeal to the disenchanted are hardly new, they are becoming more refined and even <a href="http://www.theguardian.com/commentisfree/2014/oct/17/russell-brand-nigel-farage-anti-politics">trendy</a>. </p>
<p>Populists represent today’s politics of anti-politics. To keep them at a safe distance from power, middle-ground players should learn more about them.</p>
<h2>Rallying ‘the people’ through division</h2>
<p>Enlightenment philosopher John Locke <a href="https://books.google.com.au/books?id=vjYIAAAAQAAJ&pg=PA373&dq=an+essay+concerning+human+understanding+speech+the+great+bond&hl=en&sa=X&ved=0ahUKEwi694qJ6aPKAhWHJZQKHTGSCK4Q6AEIGzAA#v=onepage&q=an%20essay%20concerning%20human%20understanding%20speech%20the%20great%20bond&f=false">wrote</a> that speech is “the great bond that holds society together”. Paradoxically, speech can also be a great divider, as each confronting us-and-them statement by, for example, <a href="http://edition.cnn.com/2015/12/07/politics/donald-trump-muslim-ban-immigration/">Donald Trump</a>, demonstrates. </p>
<p>No matter if populists are right or left, rich or poor, businessmen, academics or ex-military officers, they use speech to bond with the like-minded (“the people”, the disenchanted or excluded) and alienate the rest – usually the conventional, cosmopolitan or middle ground.</p>
<p>As populism is a <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1475-6765.2006.00690.x/abstract">political communication style</a>, it can be confusing, fuzzy or volatile. This is why Republican presidential frontrunner Trump, a reactionary xenophobe, and Democratic candidate Bernie Sanders, a left-wing, anti-Wall Street activist, can be represented as two American populists in the <a href="http://www.newsweek.com/donald-trump-populism-365052">same story</a>. They share a divisive and dividing communication style.</p>
<p>Comparing them with middle-ground elite players such as Barack Obama and Hillary Clinton, or Angela Merkel in Europe, makes clearer the essence of populism: it resents conventional elites, dislikes dialogue or consensus and has savvy ways to connect with the basic feelings and cravings of ordinary people. And it is informal: populism is an act of speech. </p>
<p>Populism can be defined then as a political communication style in the <a href="https://www.book2look.com/embed/9781317439561">construction of power and identity</a>. It thrives on the use of elements of:</p>
<ul>
<li><p>culture (shared values, traditions, nationalism, patriotism)</p></li>
<li><p>all available media tools</p></li>
<li><p>non-mediatic (grassroots, community-orientated) tactics and tools</p></li>
<li><p>alternative compelling vision and polarising emotional speech.</p></li>
</ul>
<h2>How populism and its dangers are normalised</h2>
<p>Populism is now naturalised, normalised, as an everyday happening in electoral processes around the world. Populists are not only competing within democracy but gaining positions of power. </p>
<p>Instead of slipping into the gaps between the <a href="http://onlinelibrary.wiley.com/doi/10.1111/1467-9248.00184/abstract">“pragmatic” and “redemptive”</a> faces of democracy, various populists seem to be incarnating the “redemptive” face. They position themselves as the “saviours” of ordinary people against the often “pragmatic”, aloof, socially disconnected political elites. </p>
<p>One of the dangers of this lies in the populist style’s un-pluralistic, intolerant nature and tendency to develop a personality cult. The construction of “the people” is not based on respect for “the other” and plurality of ideas and debate. Instead, it relies on antagonistic views aimed at connecting with the like-minded and shunning the rest.</p>
<p>The late <a href="https://en.wikipedia.org/wiki/Bolivarianism">Bolivarian</a> populist Hugo Chávez and the libertarian British populist Nigel Farage have demonstrated traits of intolerance and autocracy. Chávez repeatedly demanded <a href="https://www.youtube.com/watch?v=swBsxRWAmbk">“absolute loyalty”</a> because he incarnated “a people”. Farage’s fellow UKIP MEP Patrick O'Flynn accusing his leader of making the party look <a href="http://www.bbc.com/news/uk-politics-32612295">“like an absolutist monarchy”</a>.</p>
<p>Despite their outrageous style and antagonistic speech, populists have become the <a href="http://www.theguardian.com/commentisfree/video/2016/jan/06/dont-let-trump-fool-you-rightwing-populism-is-the-new-normal-video">new normal</a>. This is a result of their success in <a href="http://www.tandfonline.com/doi/abs/10.1080/0031322032000185578">“injecting populist themes and prejudices”</a> into the political agenda, and of traditional politicians adopting populist messages and tactics.</p>
<p>Australia’s John Howard, for instance, <a href="http://www.tandfonline.com/doi/abs/10.1080/10361140802429247">appropriated</a> some of Pauline Hanson’s topics in the 1990s. Chávez helped <a href="http://edition.cnn.com/2013/03/08/world/americas/venezuela-chavez-legacy/">change the conversation</a> in the Americas by challenging US power in the region and prioritising social issues and empowerment of “the people”. </p>
<h2>Leftist populists rise and fall in Latin America</h2>
<p>The end of 2015 was eventful for the league of populists. Left-wing populists lost ground in formerly populist-dominated South America. </p>
<p>In Venezuela, after 14 years of Chávez’s rule followed by three years of Nicolas Maduro, the united opposition parties <a href="http://www.cne.gob.ve/resultado_asamblea2015/r/0/reg_000000.html?">won 65% of the seats</a> in parliamentary elections in early December. A tired <em><a href="https://en.wikipedia.org/wiki/Chavism">Chavismo</a></em> was hit by lower oil prices, hyperinflation, <a href="http://www.pbs.org/newshour/rundown/venezuelans-battle-chronic-shortages-low-oil-prices-leave-economy-crippled/">shortages</a>, crime, general mismanagement and accusations of corruption. </p>
<p>In Argentina, after 12 years of left-wing Peronist Kirchnerism, Cristina Kirchner’s candidate, Daniel Scioli, <a href="http://www.economist.com/blogs/graphicdetail/2015/11/mauricio-macri-elected-argentinas-next-president">narrowly lost</a> the November presidential elections to the centre-right’s Mauricio Macri. </p>
<p><em>Chavistas</em> and <em>Kirchneristas</em> have found it difficult to accept defeat. Kirchner <a href="http://www.dailymail.co.uk/news/article-3353894/Don-t-cry-Argentina-Emotional-Cristina-Kirchner-takes-parting-shot-successor-thousands-streets-bid-controversial-president-farewell.html">“snubbed Macri’s inauguration”</a>. In Venezuela, <a href="http://finance.yahoo.com/news/venezuelas-president-declares-economic-emergency-173911065.html">significant tensions</a> have arisen between the new legislature, the executive and Supreme Court. </p>
<p>In record time, the <em>Chavista</em>-controlled court declared void the <a href="http://www.bbc.com/news/world-latin-america-35287291">acts of the National Assembly</a> due to the obscure suspension of three newly elected parliamentarians. Telesur, the continental network that Chávez created and financed as a counter to “imperialist” media, is denouncing the first <a href="http://www.telesurtv.net/english/news/Venezuela-Right-Wing-Removes-Picture-of-Chavez-from-Parliament-20160106-0044.html">deeds of the “right-wingers”</a> in Venezuela and Argentina. Macri is <a href="http://www.telesurtv.net/english/news/Argentines-Protest-Government-Censorship-20160112-0032.html">accused of censoring Kirchnerist journalists</a>, while Kirchner maintains a fierce attack <a href="https://twitter.com/cfkargentina">via Twitter</a>.</p>
<p>So, has left-wing populism reached its limits in South America? A region beset by inflation, poverty, exclusion and crime will always have a place for redemptive superheroes.</p>
<h2>On the rise across Europe</h2>
<p>In Europe, populist players of right and left are on the rise. </p>
<p>Some are in government, like socialist Greek Prime Minister Alexis Tsipras. In 2015, his anti-austerity, anti-Europe party, Syriza, won two elections in less than nine months <a href="http://www.theguardian.com/world/live/2015/sep/20/greek-general-election-results-alexis-tsipras-syriza-meimarakis-new-democracy-livesults">with 35% of the vote</a>. </p>
<p>In some Nordic countries, such as <a href="http://www.thelocal.no/20151216/norway-populists-win-new-immigration-ministry">Norway</a> and <a href="https://theconversation.com/finland-election-anti-eu-right-marches-onto-centre-stage-40504">Finland</a>, ultra-conservative anti-immigration populists are in governing coalitions.</p>
<p>Other populist players are advancing to positions of power. In the weeks since Spain’s <a href="https://theconversation.com/spain-votes-for-change-but-has-no-idea-what-government-itll-end-up-with-52583">general election</a>, it has been poised between minority government, uneasy coalitions and fresh elections. Podemos’ Pablo Iglesias has become a decisive voice amid political fragmentation and sick bipartisanship.</p>
<p>The traditional pendulum between Spain’s centre-right (Partido Popular, which won 29% of the votes and 123 seats) and centre-left (PSOE, 22% and 90 seats) <a href="http://www.elmundo.es/espana/2015/12/20/5676faa222601d94038b458f.html">was broken</a>. The left-wing Podemos won an impressive 20.66% and 69 seats, while liberal populists Ciudadanos gained 13.93% and 40 seats. Prime Minister Mariano Rajoy, of Partido Popular, is trying to form government in a <a href="http://www.elmundo.es/espana/2015/12/20/5676faa222601d94038b458f.html">very fragmented, very difficult environment</a>.</p>
<p>The first agreement to select the president and directive of the Congress <a href="http://politica.elpais.com/politica/2016/01/12/actualidad/1452624456_505223.html">left out Podemos</a>. Iglesias has denounced a secretive “bunker” coalition between the right, socialists and Ciudadanos against Podemos. <a href="https://twitter.com/pablo_iglesias_?lang=en">Via Twitter</a>, he is holding PSOE responsible for thwarting a progressive alternative to Rajoy.</p>
<p>In the Netherlands, right-wing populist Geert Wilders and his Freedom Party have soared into the lead in <a href="http://www.newenglishreview.org/blog_direct_link.cfm/blog_id/62433/Wilders-PVV--Vaults--to-Top-Party-in-Latest-Dutch-Public-TV-Poll-;">opinion polls</a>. He and other European populists <a href="http://www.businessinsider.com.au/europes-hard-right-parties-making-gains-in-polls-2015-11?r=UK&IR=T">are thriving</a> in the context of mass immigration, terrorism, economic problems and corruption in politics. They include the extreme right <a href="https://theconversation.com/why-is-sweden-tightening-its-borders-after-years-of-welcoming-migrants-53000">Swedish Democrats</a> and <a href="http://www.dw.com/en/danish-mep-quits-governing-party-over-asylum-policy/a-18930638">Danish People’s Party</a>. </p>
<p>Marine Le Pen, the anti-immigration, ultra-conservative leader of France’s Front National (FN) is, along with Trump (who has been dubbed “<a href="http://www.newyorker.com/news/john-cassidy/could-donald-trump-be-americas-marine-le-pen">America’s Marine Le Pen</a>”), probably the most celebritised of the populists today. Her party won <a href="http://www.theguardian.com/world/2015/dec/14/french-elections-what-results-mean-for-2017-presidential-race">6.8 million votes</a> in second-round regional elections in December. The FN’s vote (27%) situates Le Pen <a href="https://theconversation.com/the-front-nationals-polling-better-than-ever-but-dont-expect-a-president-le-pen-52229">closer to challenging</a> former president Nicolas Sarkozy and the incumbent Francois Hollande in the 2017 election. </p>
<p>The FN <a href="http://www.telegraph.co.uk/finance/economics/12038100/Euro-regime-is-working-like-a-charm-for-Frances-Marine-Le-Pen.html">“swept 55% of the working-class vote stealing the socialist base”</a>. Like UKIP in the May 2015 UK elections, no firsts but many seconds position them for future wins. Le Pen is framing the presidential debate in typically populist binary terms, between traditional or mainstream “globalists” and <a href="http://www.newsweek.com/what-if-marine-le-pen-wins-french-presidency-408357">FN “patriots”</a>. </p>
<p>Other populist leaders or groups focus on specific issues. Since leading UKIP to become the <a href="https://theconversation.com/tories-win-uk-election-outright-majority-as-polls-completely-fail-41499">third-most-popular party</a> in the UK, Farage is championing a <a href="http://blogs.spectator.co.uk/2015/09/nigel-farage-immigration-rhetoric-may-harm-campaign-new-poll-suggests/">Brexit</a>. Some argue that his <a href="http://www.itv.com/news/update/2016-01-17/nigel-farage-eu-referendum-people-versus-politicians/">divisive rhetoric</a> might harm the vote to leave Europe, but who knows?</p>
<p>In Italy, populist comedian Beppe Grillo and his strong “Five Star Movement” are leading a campaign for online “direct democracy”, in which <a href="http://www.beppegrillo.it/en/2015/04/the_m5s_is_applying_direct_dem.html">ordinary people become legislators</a>. </p>
<h2>What now?</h2>
<p>The record of populists in the Americas and Europe shows they should not be underestimated. </p>
<p>Trump’s <a href="https://theconversation.com/will-donald-trump-win-the-us-republican-presidential-nomination-52702">strong polling figures</a> suggest populism will be a force throughout the presidential primaries this year. </p>
<p>What do the vicissitudes and naturalisation of the bizarre populist superheroes signal? Perhaps that middle-ground, cosmopolitan politicians should learn to connect more effectively with their constituents, their grievances and aspirations. To meet the political challenges of this time, they need to engage in a robust and meaningful conversation not only with the like-minded but also with those who are not.</p><img src="https://counter.theconversation.com/content/51905/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elena Block does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Populist politicians are on the march, first in Latin America, then in Europe and the US. They are on both the left and right, and their policies vary, but their approach carries the same risks.Elena Block, Honorary Research Fellow, Sessional Lecturer and Tutor in Political Communication, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/480572015-09-24T05:30:43Z2015-09-24T05:30:43ZTsipras can win elections, but now Syriza needs a growth plan for Greece<p>Syriza’s victory in the Greek snap election is remarkable. After all, it followed a catastrophic seven months in power that saw Greece almost exit the euro, the Greek economy plunge back into recession, the imposition of capital controls following a practically meaningless and divisive referendum, and the signing of a third bailout programme last August – which effectively contradicted the platform on which Syriza initially came to power. </p>
<p>And yet, Alexis Tsipras’s party <a href="https://theconversation.com/greek-election-tsipras-trounces-his-opponents-but-at-what-cost-47790">has been re-elected</a> with almost the same proportion of the vote it secured in his first electoral victory in January 2015 and the same slim majority in coalition with the Independent Greeks (ANEL). </p>
<p>Where do Syriza and Greece go from here? By signing the third Greek bailout programme in August, the country is committed to a large number of fiscal measures and structural reforms aimed towards increasing competition and flexibility in the country’s goods, services and labour market. Any mainstream economist will agree that these reforms are necessary if the Greek economy is to resume a path <a href="http://www.cesifo-group.de/DocDL/dicereport115-rr1.pdf">towards sustainable growth and job creation</a>.</p>
<h2>Policy contradictions</h2>
<p>Nevertheless, a smaller public sector and increased market competition coupled with deregulation is exactly the opposite of what Syriza ideologically stands for. They are also in direct contrast to the vested interests of those lobby groups who have been Syriza’s staunchest supporters such as public sector trade unions, state-owned enterprises and closed professions, ranging from doctors and lawyers to pharmacy-owners and taxi drivers. There’s also a strong risk that the bailout’s success will be undermined.</p>
<p>Since signing the new agreement, Tsipras has repeatedly knocked its prospects. He has stated that he personally does not believe in its <a href="http://www.telegraph.co.uk/finance/economics/11740527/Alexis-Tsipras-on-Greek-bailout-I-signed-a-text-I-do-not-believe-in.html">ability to take Greece out of the crisis</a>. He has also been joined by a number of high-profile Syriza officials who have expressed their opposition to many of its clauses <a href="http://www.protothema.gr/politics/article/505773/spirtzis-euhomai-na-min-karpoforisei-o-diagonismos-gia-ta-aerodromia/">such as the privatisation of Greece’s state-owned ports and airports</a>.</p>
<p>Then there’s the coalition’s record in their first (albeit short) term in office. Their handling of other key areas such as <a href="http://www.kathimerini.gr/830565/article/epikairothta/ellada/150-sxoleia-paremeinan-kleista">education</a>, <a href="http://www.tovima.gr/society/article/?aid=700683">healthcare</a>, <a href="http://www.kathimerini.gr/828439/article/oikonomia/ellhnikh-oikonomia/katerreyse-o-proupologismos-sto-7mhno-toy-2015">tax collection</a> and the <a href="http://www.newsit.gr/ellada/Metanasteytiko-I-ypiresiaki-kyvernisi-karfonei-tin-kyvernisi-Tsipra/428020">refugee crisis</a> raises serious question marks regarding the coalition’s ability to govern effectively. </p>
<p>These are set to become even more acute in light of the economic deterioration <a href="http://money.cnn.com/2015/07/17/news/economy/greece-bailout-recession/">expected in the forthcoming months</a>, when the fallout from the imposition of capital controls and the new bailout’s measures are likely to be felt in the form of a deepened recession, higher unemployment and increased tax bills.</p>
<h2>Uncertain outlook</h2>
<p>As the dust from Syriza’s latest electoral victory settles, the picture emerging is one of a government having to implement a policy in which it does not believe. Not to mention its slim parliamentary majority and the fact that it is relying on political personnel of unproven executive record, within an increasingly challenging economic and social environment. And, as the outcome of the recent showdown with Greece’s European partners showed, very limited leverage in the European political arena. </p>
<p>This outlook is not conducive toward restoring predictability and confidence in Greek politics or the country’s economic performance – necessary prerequisites for Greece to return to the path of economic recovery it <a href="https://www.cesifo-group.de/ifoHome/publications/working-papers/CESifoWP/CESifoWPdetails?wp_id=19126042">seemed to be on a year ago</a></p>
<p>Tsipras has so far proved to be a brilliant tactician in terms of forcing and winning elections. Whether, however, he is an equally brilliant strategist in office, is open to question. The impression one gets from examining his moves is that he keeps asking the Greek voters to hand him electoral victories he does not know what to do with. This is because from the very beginning, his Achilles’ heel has been, and continues to be, the lack of a credible growth plan – and winning elections does not, on its own, produce one. </p>
<p>It can only be hoped that Tsipras’s latest electoral triumph will bring a break with Syriza’s economic <em>idées fixe</em>, in the same way that he broke with the extreme left wing of his party in August. If he manages to do so, both he, his party, but most importantly Greece, stand to gain enormously. If not, then the next Greek election may not be too far away.</p><img src="https://counter.theconversation.com/content/48057/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael G. Arghyrou is a member of the Scientific Council of the Institute for Democracy Konstantinos Karamanlis.</span></em></p>Syriza’s re-election was remarkable for the same reasons that it will struggle to implement the economic reforms Greece needs.Michael Arghyrou, Reader in Economics, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/477902015-09-21T12:01:27Z2015-09-21T12:01:27ZGreek election: Tsipras trounces his opponents, but at what cost?<p>In the latest episode of the seemingly never-ending Greek crisis, the election of September 20 marked another <a href="http://www.theguardian.com/world/2015/sep/20/greece-election-result-the-key-numbers">decisive victory for Syriza</a> – and especially for its leader, Alexis Tsipras. </p>
<p>As in the <a href="https://theconversation.com/why-the-polls-got-it-so-wrong-in-the-british-election-41530">UK elections</a>, opinion polls failed to predict the considerable gap between Syriza (35.5% of the vote) and centre-right opposition party New Democracy (28% of the vote), with most pre-election surveys indicating a very close battle. </p>
<p>In another surprise, no seats were won by Syriza’s splinter party <a href="https://theconversation.com/why-alexis-tsipras-has-called-a-snap-election-in-greece-46496">Popular Unity</a>, which accused Tsipras of treason for signing Greece up to a deal with the so-called “troika” (the European Commission, International Monetary Fund and European Central Bank). </p>
<h2>Natural coalition</h2>
<p>Further confounding predictions was the popularity of Syriza’s populist right-wing coalition partner, <a href="http://www.theguardian.com/world/2015/jan/26/greece-elections-who-are-independent-greeks">Independent Greeks</a> (ANEL). Contrary to the polls, the party managed to enter parliament with ten seats. Its leader, Panos Kammenos, announced that the Syriza-ANEL coalition government will be renewed, while Tsipras promised a four-year government.</p>
<p>It should be noted that ANEL was supported enthusiastically by Tsipras, who claimed numerous times that ANEL was the only party he was willing to collaborate with, and that any other coalition would be “<a href="http://www.bbc.co.uk/news/world-europe-34249754">unnatural</a>”. Despite their differences, Syriza and ANEL have an ideological affinity over <a href="http://blogs.lse.ac.uk/eurocrisispress/2015/02/05/greek-elections-2015-the-beginning-of-the-end-or-the-end-of-the-beginning/">anti-western populism</a>. This paradoxical coalition, however, is now expected to implement a western-led austerity package in order to satisfy the troika. </p>
<p>Shockingly, neo-Nazi party <a href="https://theconversation.com/for-the-sake-of-greece-they-must-get-the-golden-dawn-trial-right-41395">Golden Dawn</a> remains Greece’s third party, winning almost 7% of the vote (slightly higher than the January 2015 elections) even after its leader publicly accepted the “<a href="http://www.ekathimerini.com/201623/article/ekathimerini/news/golden-dawn-chief-accepts-partys-political-responsibility-in-fyssas-murder">political responsibility</a>” for the assassination of a left wing musician Pavlos Fyssas. </p>
<p>Golden Dawn’s persistence shows that a part of the Greek electorate openly supports a neo-Nazi party which uses violence as political strategy and tool and remains loyal to its message of hate and nationalistic totalitarianism. </p>
<p>It should be noted that Golden Dawn (along with Syriza) is predominantly supported by <a href="http://greece.greekreporter.com/2014/10/20/why-do-young-greeks-vote-for-golden-dawn/">young voters</a>. Greeks have had many options to punish the establishment by voting for any of the country’s array of protest parties; voting Golden Dawn in this election shows there’s a cohort of voters doggedly loyalty to the party, potentially a considerable problem for Greece’s future political stability. </p>
<h2>Pyrrhic victory</h2>
<p>Nevertheless, there is no doubt that the biggest winner in the September election was Tsipras. </p>
<p>His <a href="https://theconversation.com/why-alexis-tsipras-has-called-a-snap-election-in-greece-46496">call to hold snap elections</a> turned out to be a masterstroke of Machiavellian political ingenuity. </p>
<p>On one hand, Tsipras managed a very efficient move to get rid of his internal opposition without even facing them in public. On the other hand, he saved face for his anti-austerity u-turn and now has legitimacy to implement three more years of harsh austerity which he agreed before the elections. That means Tsipras’s power is now more assured than ever, and his popularity clearly intact.</p>
<p>Still, one could argue that Tsipras’ victory was rather pyrrhic. The elections show the <a href="http://greece.greekreporter.com/?s=abstention+rate">highest abstention rate in Greece’s modern history</a> with almost half of eligible voters not turning out. This shows the disappointment of many voters as well as their silent acceptance that there is <a href="http://www.aljazeera.com/indepth/opinion/2015/07/greek-austerity-dead-long-live-austerity-150712083735451.html">no alternative to austerity</a>, and implies that almost half of Greeks do not feel that any of the existing parties represents them. </p>
<p>Greece is still coming off a prolonged period of reform inertia and political instability. That turbulence can be traced back to Syriza’s victory in the <a href="http://www.theguardian.com/politics/2014/may/26/syriza-european-elections-greece">2014 European elections</a>, after which the Samaras government did little to implement much needed reforms for fear of unpopularity. Then the economy almost stalled after Syriza’s win in <a href="https://theconversation.com/syriza-sweeps-to-victory-in-greek-election-promising-an-end-to-humiliation-36680">January 2015</a>, while the imposition of capital controls dramatically undermined economic stability and confidence both within and outside Greece on economic recovery. </p>
<p>The worst is yet to come. The new government will have to implement a series of unpopular measures such as pension and labour market reforms, privatisations, liberalisation of professions and other structural reforms in healthcare and public administration that will alienate key parts of the Greek electorate. </p>
<p>Still, Tsipras has proven to be a remarkable political maverick. He is greatly skilled in electioneering, and his natural charisma keeps him very popular among Greeks (especially younger ones). It remains to be seen how his transformation from a hard-left radical to a pro-austerity premier will turn out, but so far, he has escaped punishment from the electorate despite reneging on almost all of his pre-2015 promises. </p>
<p>One may argue that Tsipras faces a considerable danger to turn into an unpopular leader as soon as austerity hits Greek voters. As Thomas Hobbes wrote in <a href="http://www.notable-quotes.com/h/hobbes_thomas_ii.html#TJFb0tbh61ljzcgg.99">Leviathan</a>, “where men build on false grounds, the more they build, the greater is the ruin”.</p><img src="https://counter.theconversation.com/content/47790/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sotirios Zartaloudis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Syriza lives to fight another day, but the omens for Greece’s future are as ominous as ever.Sotirios Zartaloudis, Lecturer in Politics, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/441112015-09-19T08:47:16Z2015-09-19T08:47:16ZI’m standing in the Greek election as an alternative to Syriza’s deception<p>When the Greek people vote <a href="https://theconversation.com/why-leaving-the-euro-is-back-on-the-agenda-in-the-greek-election-47601">in Sunday’s election</a> they are being asked to offer their judgement on former prime minister, Alexis Tsipras, and his Syriza government. That judgement should be harsh.</p>
<p>During a fraught 2015, Syriza’s leadership sought a political triumph over ideological adversaries in the eurozone by trying to force them to submit to extraordinary demands. They essentially used Greece as a bargaining chip in this ideological battle and declined to use the most obvious and less risky methods available to them to improve the future of Greece.</p>
<p>I would like to explain this not only as someone who understands the technicalities of European Union law, but also as a Greek citizen who is also involved in the Greek election, as a candidate for the new centre-Left party <a href="http://news.yahoo.com/leaders-watch-greek-election-094655669.html">To Potami</a>.</p>
<h2>Varoufakis’s lament</h2>
<p>Many commentators seem to think that Syriza fought for Greece’s right to remain an equal member of the eurozone without excessive obligations – a fight that was lost due to the ideological commitments of European governments (Germany in particular). A closer look, however, shows a different picture. One cannot understand what happened without a good grasp of the legal framework of the eurozone and of the bailout deal. </p>
<p><a href="https://theconversation.com/uk/topics/yanis-varoufakis">Former finance minister Yanis Varoufakis</a>, has given a <a href="http://www.kathimerini.gr/830755/opinion/epikairothta/politikh/ar8ro-toy-g-varoyfakh-giati-htth8hkame">recent summary</a> of events to newspaper Kathimerini, talking about his misgivings over the agreement <a href="http://www.efsf.europa.eu/attachments/Third%20Amendment%20to%20Greek%20MFFA.pdf">reached on February 20</a>. But his summary also confirmed for me that the handling of that agreement was bungled and that its presentation to the Greek public was, to say the least, misleading.</p>
<p>Varoufakis complains that on February 24, the troika – the European Commission, European Central Bank and International Monetary Fund – violated the letter and spirit of the agreement from four days earlier. He says that whereas the earlier agreement was about replacing the old commitments with a new list to be proposed by Greece, they insisted that the deal incorporated all the pre-existing austerity conditions. He regrets that he still signed it. </p>
<p>The truth is that no agreement from the informal Eurogroup – as was signed on February 20 – could amend the bailout conditions imposed on Greece in the previous <a href="http://ec.europa.eu/economy_finance/assistance_eu_ms/greek_loan_facility/index_en.htm">Memorandum of Understanding</a> as Varoufakis suggests. In fact, a glance at the text of the <a href="http://www.consilium.europa.eu/en/press/press-releases/2015/02/150220-eurogroup-statement-greece/">statement</a> makes it clear that this was not the intention at all. It makes existing conditions available for a few more months. It allowed the banks to stay open with ECB support until June 30. </p>
<p>Even if such a joint statement had expressed a desire to replace the bailout conditions, this could only have been the beginning of a long and complex legislative process. It would have to include the EU Commission, Council, and Parliament, but also national governments and parliaments. </p>
<h2>High rhetoric</h2>
<p>How this agreement with the Eurogroup was presented, though, is quite extraordinary. The Greek government behaved as if it had not signed this agreement but an entirely different one. The government <a href="http://www.primeminister.gov.gr/2015/02/27/13379">announced</a> that they had changed the terms of the bailout. They said that austerity and the troika had “ended”. With their usual high rhetoric, they <a href="http://www.syriza.gr/article/id/60458/Omilia-toy-Proedroy-toy-SYRIZA-Aleksh-Tsipra-sthn-Kentrikh-Epitroph21.html#.Vfv3sRFVhBc">declared</a> that there was now an entirely new and different deal and that everything was up for negotiation.</p>
<p>Varoufakis’s recent comments prove that even if they had entertained any illusions at the start, by February 24 at the latest they knew that they had extended the old bailout deal without changing its terms. The government chose not to submit the agreement to parliament, contrary to established practice. </p>
<p>As a result of these announcements, however, the government’s popularity soared. For the first time in years the EU was seen to have been defeated. People believed the official story, which few challenged, that the EU had conceded ground due to Syriza’s robust demands. </p>
<h2>End game</h2>
<p>Varoufakis’s admission that he knew the truth shows something else too, which is even more important. From February onwards, he knew that, legally speaking at least, he could only negotiate under the agreed terms. And he chose not to. That puts into perspective his all-out assault on the eurozone. The subject matter of this tug of war was not Greece’s particular position but the structure of the eurozone as a whole, which Varoufakis wanted and still wants to change. </p>
<p>The Greek government’s overall strategy was to force Germany to allow debt forgiveness, loans from the ECB and no reviews. It expected Germany to give in solely due to a fear that a Greek exit would bring about the breakup of the eurozone. For this gamble to work, Grexit had to become a real possibility, a prospect close enough to scare leaders into panicked retreat. </p>
<p>Of course, the strategy was extremely risky. If anything went wrong, years of misery would most certainly follow for the Greek people. Yet, dizzy perhaps from their startling ascent, Tsipras and Varoufakis set aims so ambitious, so globally significant, that the particular needs of the Greek economy became a sideshow. </p>
<p>So the Greek government went on for the next four months demanding things that were not available under the eurozone legal framework. They required for the most part wholesale changes to European treaties. But such ambitious changes were actually not needed for achieving a less painful deal for Greece. </p>
<p>There were other, more obvious avenues, which the government chose not to take. The bailout is now governed by <a href="http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32013R0473">a new piece</a> of EU law which essentially shifts responsibility to the European Stability Mechanism (ESM). This means that the best possible outcome for Greece would have been to secure, first, an improvement in its financial position and then an end to the adjustment programme under the ESM, followed by post-programme surveillance. Syriza, however, kept ignoring this and other possibilities here and kept pushing for changes that were much harder to satisfy. </p>
<p>Tsipras and Varoufakis effectively persuaded Greeks that a Grexit was highly unlikely, since the EU was already giving ground. The government’s popularity allowed it to engage in ever riskier actions and statements. This, in theory, might have served to make its threats to Germany more credible. It was the rationale, I suspect, of the ill-fated referendum of July 5, which brought about capital controls. Tsipras announced it promising that a strong “No” would strengthen Greece’s hand. </p>
<p>As everyone who knows something about the eurozone understands, these hopes were entirely misconceived. Germany could not have accepted the rewriting of the rulebook. The credibility of monetary union was on the line. So Tsipras’ hopes were immediately dashed on the evening of the referendum, when the eurozone leaders told Tsipras over the phone that no new deal was forthcoming.</p>
<p>In the aftermath, Tsipras’ party has split and his popularity has fallen to such an extent that the result of the coming election <a href="http://www.reuters.com/article/2015/09/18/us-eurozone-greece-poll-idUSKCN0RI0AY20150918">is too close to call</a>. But what is most striking in this story is not this outcome, which was widely predicted. It is the fact that Tsipras never really attempted to negotiate a deal which would improve the bailout terms for his country. Even though Tsipras assured his people that this was what he was doing, such a negotiation never took place. He pursued a different project, namely the change in the rules for the whole of the eurozone. He did not use the most obvious route to help his country. Perhaps history should record this failure as the most important one of all.</p><img src="https://counter.theconversation.com/content/44111/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pavlos Eleftheriadis is affiliated with To Potami, a centre-Left political party in Greece, for which he is an unpaid spokesperson on EU affairs and a parliamentary candidate in Athens for the September 20 election. </span></em></p>An opposition politician and academic argues that new revelations from the Syriza leadership imply that the Prime Minister misled the Greek people.Pavlos Eleftheriadis, Associate Professor of Law & Fellow of Mansfield College, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/358612015-08-27T11:01:43Z2015-08-27T11:01:43ZVaroufakis in conversation with leading academics as Syriza splinters and election beckons in Greece<p>When Yanis Varoufakis was elected to parliament and then <a href="http://www.theguardian.com/business/economics-blog/2015/jan/26/profile-yannis-varoufakis-greece-finance-minister">named as Greek finance minister in January</a>, he embarked on an extraordinary seven months of negotiations with the country’s creditors and its European partners. </p>
<p>On July 6, Greek voters backed his hardline stance in a referendum, with a resounding <a href="https://theconversation.com/greece-votes-no-now-syriza-must-clarify-what-that-really-means-44289">62% voting No to the European Union’s ultimatum</a>. On that night, he resigned, after prime minister Alexis Tsipras, fearful of an ugly exit from the eurozone, decided to go against the popular verdict. Since then, the governing party, Syriza, has splintered and a <a href="https://theconversation.com/why-alexis-tsipras-has-called-a-snap-election-in-greece-46496">snap election has been called</a>. Varoufakis remains a member of parliament and a prominent voice in Greek and European politics.</p>
<p>When asked about Tsipras’s decision to trigger a snap election, inviting the Greek public to issue their judgement on his time in office, Varoufakis said:</p>
<blockquote>
<p>If only that were so! Voters are being asked to endorse Alexis Tsipras’ decision, on the night of their majestic referendum verdict, to overturn it; to turn their courageous No into a capitulation, on the grounds that honouring that verdict would trigger a Grexit. This is not the same as calling on the people to pass judgement on a record of steadfast opposition to a failed economic programme doing untold damage to Greece’s social economy. It is rather a plea to voters to endorse him, and his choice to surrender, as a lesser evil.</p>
</blockquote>
<p>The Conversation asked nine leading academics what their questions were for a man who describes himself as an “accidental economist”. His answers reveal regrets about his own approach during a dramatic 2015, a withering assessment of France’s power in Europe, fears for the future of Syriza, a view that Syriza is now finished, and doubts over how effective Jeremy Corbyn could be as leader of Britain’s Labour party.</p>
<hr>
<p><strong>Anton Muscatelli, University of Glasgow</strong> - <em>Why was Greek prime minister Alexis Tsipras persuaded to accept the EU’s pre-conditions around the third bailout discussions despite a decisive referendum victory for the No campaign; and is this the end of the road for the anti-austerity wing of Syriza in Greece?</em></p>
<p><strong>Varoufakis:</strong> Tsipras’ answer is that he was taken aback by official Europe’s determination to punish Greek voters by putting into action German finance minister Wolfgang Schäuble’s plan to push Greece out of the eurozone, redenominate Greek bank deposits in a currency that was not even ready, and even ban the use of euros in Greece. These threats, independently of whether they were credible or not, did untold damage to the European Union’s image as a community of nations and drove a wedge through the axiom of the eurozone’s indivisibility. </p>
<p>As you probably have heard, on the night of the referendum, I disagreed with Tsipras on his assessment of the credibility of these threats and resigned as finance minister. But even if I was wrong on the issue of the credibility of the troika’s threats, my great fear was, and remains, that our party, Syriza, would be torn apart by the decision to implement another self-defeating austerity program of the type that we were elected to challenge. It is now clear that my fears were justified.</p>
<hr>
<p><strong>Roy Bailey, University of Essex</strong> - <em>Was the surprise referendum of July 5 conceived as a threat point for the ongoing bargaining between Greece and its creditors and has the last year caused you to adjust how you think about Game Theory?</em></p>
<p><strong>Varoufakis:</strong> I shall have to disappoint you Roy {<em>Editor’s note: Roy Bailey taught Varoufakis at Essex and advised on his PhD</em>}. As I wrote <a href="http://www.nytimes.com/2015/02/17/opinion/yanis-varoufakis-no-time-for-games-in-europe.html?_r=2">in a New York Times op-ed</a>, Game Theory was never relevant. It applies to interactions where motives are exogenous and the point is to work out the optimal bluffing strategies and credible threats, given available information. Our task was different: it was to persuade the “other” side to change their motivation vis-à-vis Greece. </p>
<p>I represented a small, suffering nation in its sixth straight year of deep recession. Bluffing with our people’s fate would be irresponsible. So I did not. Instead, we outlined that which we thought was a reasonable position, consistent with our creditors’ own interests. And then we stood our ground. When the troika pushed us into a corner, presenting me with an ultimatum on June 25 just before closing Greece’s banking system down, we looked at it carefully and concluded that we had neither a mandate to accept it (given that it was economically non-viable) nor to decline it (and clash with official Europe). Instead we decided to do something terribly radical: to put it to the Greek people to decide.</p>
<p>Lastly, on a theoretical point, the “threat point” in your question refers to <a href="http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1994/nash-lecture.pdf">John Nash’s bargaining solution</a> which is based on the axiom of non-conflict between the parties. Tragically, we did not have the luxury to make that assumption.</p>
<hr>
<p><strong>Cristina Flesher Fominaya, University of Aberdeen</strong> - <em>The dealings between Greece and the EU seemed more like a contest between democracy and the banks, than a negotiation between the EU and a member state. Given the outcome, are there any lessons that you would take from this for other European parties resisting the imperatives of austerity politics?</em></p>
<p><strong>Varoufakis:</strong> Allow me to phrase this differently. It was a contest between the right of creditors to govern a debtor nation and the democratic right of the said nation’s citizens to be self-governed. You are quite right that there was never a negotiation between the EU and Greece as a member state of the EU. We were negotiating with the troika of lenders, the International Monetary Fund, the European Central Bank and a wholly weakened European Commission in the context of an informal grouping, the Eurogroup, lacking specific rules, without minutes of the proceedings, and completely under the thumb of one finance minister and the troika of lenders. </p>
<p>Moreover, the troika was terribly fragmented, with many contradictory agendas in play, the result being that the “terms of surrender” they imposed upon us were, to say the least, curious: a deal imposed by creditors determined to attach conditions which guarantee that we, the debtor, cannot repay them. So, the main lesson to be learned from the last few months is that European politics is not even about austerity. Or that, as <a href="http://yanisvaroufakis.eu/2015/03/15/presenting-an-agenda-for-europe-at-ambrosetti-lake-como-14th-march-2015/">Nicholas Kaldor wrote in The New Statesman</a> in 1971, any attempt to construct a monetary union before a political union ends up with a terrible monetary system that makes political union much, much harder. Austerity and a hideous democratic deficit are mere symptoms.</p>
<hr>
<p><strong>Panicos Demetriades, University of Leicester</strong> - <em>Did you ever think that your message was being diluted or becoming noisy, or even incoherent, by giving so many interviews?</em></p>
<p><strong>Varoufakis:</strong> Yes. I have regretted several interviews, especially when the journalists involved took liberties that I had not anticipated. But let me also add that the “noise” would have prevailed even if I granted far fewer interviews. Indeed the media game was fixed against our government, and me personally, in the most unexpected and repulsive way. Wholly moderate and technically sophisticated proposals were ignored while the media concentrated on trivia and distortions. Giving interviews where I would, to some extent, control the content was my only outlet. Faced with an intentionally “noisy” media agenda that bordered on character assassination, I erred on the side of over-exposure. </p>
<hr>
<p><strong>Simon Wren-Lewis, University of Oxford</strong> - <em>Might it have been possible for a forceful France to have provided an effective counterweight to Germany in the Eurogroup, or did Germany always have a majority on its side?</em></p>
<p><strong>Varoufakis:</strong> The French government feels that it has a weak hand. Its <a href="http://www.reuters.com/article/2015/03/26/us-france-economy-idUSKBN0MM0NN20150326">deficit</a> is persistently within the territory of the so-called <a href="http://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit-procedure">excessive deficit procedure</a> of the European Commission, which puts Pierre Moscovici, the European commissioner for economic and financial affairs, and France’s previous finance minister, in the difficult position of having to act tough on Paris under the watchful eye of Wolfgang Schäuble, the German finance minister. </p>
<p>It is also true, as you say, that the Eurogroup is completely “stitched up” by Schäuble. Nevertheless, France had an opportunity to use the Greek crisis in order to change the rules of a game that France will never win. The French government has, thus, missed a major opportunity to render itself sustainable within the single currency. The result, I fear, is that Paris will soon be facing a harsher regime, possibly a situation where the president of the Eurogroup is vested with draconian veto powers over the French government’s national budget. How long, once this happens, can the European Union survive the resurgence of nasty nationalism in places like France?</p>
<hr>
<p><strong>Kamal Munir, University of Cambridge</strong> – <em>You often implied that what went on in your meetings with the troika (the IMF, ECB and European Commission) was economics only on the surface. Deep down, it was a political game being played. Don’t you think we are doing a disservice to our students by teaching them a brand of economics that is so clearly detached from this reality?</em></p>
<p><strong>Varoufakis:</strong> If only some economics were to surface in our meetings with the troika, I would be happy! None did.</p>
<p>Even when economic variables were discussed, there was never any economic analysis. The discussions were exhausted at the level of rules and agreed targets. I found myself talking at cross-purposes with my interlocutors. They would say things like: “The rules on the primary surplus specify that yours should be at least 3.5% of GDP in the medium term.” I would try to have an economic discussion suggesting that this rule ought to be amended because, for example, the 3.5% primary target for 2018 would depress growth today, boost the debt-to-GDP ratio immediately and make it impossible to achieve the said target by 2018. </p>
<p>Such basic economic arguments were treated like insults. Once I was accused of “lecturing” them on macroeconomics. On your pedagogical question: while it is true that we teach students a brand of economics that is designed to be blind to really-existing capitalism, the fact remains that no type of sophisticated economic thinking, not even neoclassical economics, can reach the parts of the Eurogroup which make momentous decisions behind closed doors.</p>
<hr>
<p><strong>Mariana Mazzucato, University of Sussex</strong> – <em>How has the crisis in Greece (its cause and its effects) revealed failings of neoclassical economic theory at both the micro and the macro level?</em></p>
<p><strong>Varoufakis:</strong> The uninitiated may be startled to hear that the macroeconomic models taught at the best universities feature no accumulated debt, no involuntary unemployment and, indeed, no money (with relative prices reflecting a form of barter). Save perhaps for a few random shocks that demand and supply are assumed to quickly iron out, the snazziest models taught to the brightest of students assume that savings automatically turn into productive investment, leaving no room for crises.</p>
<p>It makes it hard when these graduates come face-to-face with reality. They are at a loss, for example, when they see <a href="http://www.cer.org.uk/insights/more-investment-germany%E2%80%99s-sake">German savings that permanently outweigh German investment</a> while <a href="https://theconversation.com/greece-and-germany-have-more-in-common-than-you-might-think-41735">Greek investment outweighs savings</a> during the “good times” (before 2008) but collapses to zero during the crisis. </p>
<p>Moving to the micro level, the observation that, in the case of Greece, real <a href="http://www.reuters.com/article/2013/10/22/us-greece-incomes-idUSBRE99L0I420131022">wages fell by 40%</a> but employment dropped precipitously, while exports remained flat, illustrates in Technicolor how useless a microeconomics approach bereft of macro foundations truly is.</p>
<hr>
<p><strong>Tim Bale, Queen Mary University of London</strong> – <em>Do you see any similarities between yourself and Jeremy Corbyn, who looks like he might win the (UK) Labour leadership, and do you think a left-wing populist party is capable of winning an election under a first-past-the-post system?</em></p>
<p><strong>Varoufakis:</strong> The similarity that I feel at liberty to mention is that Corbyn and I, probably, coincided at many demonstrations against the Tory government while I lived in Britain in the 1970s and 1980s, and share many views regarding the calamity that befell working Britons as power shifted from manufacturing to finance. However, all other comparisons must be kept in check. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Demo partners? Jeremy Corbyn.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/garryknight/15024926027/in/photolist-oTGF3K-oFqoSv-ou7Aqw-8ZatUS-oBHKNz-wNHZ7B-wNATdW-HihJt-rRyD2L-k6WpFb-oFoHoE-wNAXkq-wNzJCJ-w9buVb-vSJAQQ-x6KuKx-x6JW2B-wNHnvX-w9bUyJ-3j3uR1-wx8Sku-vST2QH-9SZa9Q-9SZ8Wh-9SWj8a-9SWiYz-9SZ97G-9SWk3v-9SZ9QU-9SWjgT-9SZ9Z7-9SZ9FW-9SWjQ6-9SWkKp-wP2Qf5-wxgfG8-wMqMf7-wP2cq3-wPKskc-wMqKpd-wxg4ui-wMqJhy-wx8NvL-wMrez1-vSSWYD-vSTSZV-vSJrw9-wPKwJn-wx8RKE-wPL5vi">Garry Knight</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Syriza was a radical party of the Left that scored a little more than <a href="http://www.ibtimes.com/greece-elections-syriza-gears-win-grexit-expectations-are-low-1793502">4% of the vote in 2009</a>. Our incredible rise was due to the collapse of the political “centre” caused by popular discontent at a Great Depression due to a single currency that was never designed to sustain a global crisis, and by the denial of the powers-that-be that this was so. </p>
<p>The much greater flexibility that the Bank of England afforded to Gordon Brown’s and David Cameron’s British governments prevented the type of socio-economic implosion that led Syriza to power and, in this sense, a similarly buoyant radical left party is most unlikely in Britain. Indeed, the Labour Party’s own history, and internal dynamic, will, I am sure, constrain a victorious Jeremy Corbyn in a manner alien to Syriza. </p>
<p>Turning to the first-past-the-post system, had it applied here in Greece, it would have given our party a crushing majority in parliament. It is, therefore, untrue that Labour’s electoral failures are due to this system. </p>
<p>Lastly, allow me to urge caution with the word “populist”. Syriza did not put to Greek voters a populist agenda. “Populists” try to be all things to all people. Our promised benefits extended only to those earning less than £500 per month. If it wants to be popular, Labour cannot afford to be populist either.</p>
<hr>
<p><strong>Mark Taylor, University of Warwick</strong> - <em>Would you agree that Greece does not fulfil the criteria for successful membership of a currency union with the rest of Europe? Wouldn’t it be better if they left now rather than simply papering over the cracks and waiting for another Greek economic crisis to occur in a few years’ time?</em></p>
<p><strong>Varoufakis:</strong> The eurozone’s design was such that even France and Italy could not thrive within it. Under the current institutional design only a currency union east of the Rhine and north of the Alps would be sustainable. Alas, it would constitute a union useless to Germany, as it would fail to protect it from constant revaluation in response to its trade surpluses. </p>
<p>Now, if by “criteria” you meant <a href="http://ec.europa.eu/economy_finance/economic_governance/sgp/index_en.htm">the Maastricht limits</a>, it is of course clear that Greece did not fulfil them. But then again nor did Italy or Belgium. Conversely, Spain and Ireland did meet the criteria and, indeed, by 2007 the Madrid and Dublin governments were registering deficit, debt and inflation numbers that, according to the official criteria, were better than Germany’s. And yet when the crisis hit, Spain and Ireland sunk into the mire. In short, the eurozone was badly designed for everyone. Not just for Greece. </p>
<p>So should we cut our losses and get out? To answer properly we need to grasp the difference between saying that Greece, and other countries, should not have entered the eurozone, and saying now that we should now exit. Put technically, we have a case of hysteresis: once a nation has taken the path into the eurozone, that path disappeared after the euro’s creation and any attempt to reverse along that, now non-existent, path could lead to a great fall off a tall cliff.</p><img src="https://counter.theconversation.com/content/35861/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yanis Varoufakis served as Greece’s Finance Minister (January to July 2015) and remains a Member of the Hellenic Parliament.</span></em></p><p class="fine-print"><em><span>Cristina Flesher Fominaya is currently Senior Marie Curie Fellow at the Natonal University Ireland, Maynooth. Her current research project "Contentious Politics in an Age of Austerity" is funded by a Marie Sklodowska-Curie Intra-European Fellowship.</span></em></p><p class="fine-print"><em><span>Panicos O. Demetriades has received funding from the ESRC to carry out research projects and offers consultancy services through Gerson Lehrman Group.</span></em></p><p class="fine-print"><em><span>Anton Muscatelli, Kamal A Munir, Mariana Mazzucato, Mark Taylor, Roy Bailey, Simon Wren-Lewis, and Tim Bale do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Greece’s ‘accidental economist’ speaks to the UK’s leading minds on Syriza, the troika, and whether he’s just a little over-exposed.Yanis Varoufakis, Professor of Economics, University of AthensLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/464962015-08-21T16:57:29Z2015-08-21T16:57:29ZWhy Alexis Tsipras has called a snap election in Greece<p>Alexis Tsipras, the prime minister of Greece, has <a href="http://www.theguardian.com/world/2015/aug/20/greek-bailout-alexis-tsipras-call-snap-elections">announced he is stepping down and has called a snap election</a> for September 20, less than a year since he took office as the leader of the left-wing coalition Syriza. </p>
<p>The move marks another episode in the long-running and seemingly never-ending Greek crisis. It is evidence of the pitfalls of Tsipras’ populist discourse. His strategy has rendered Greece almost ungovernable for more than a year.</p>
<p>Since the Greek crisis of 2010, Alexis Tsipras had <a href="http://blogs.lse.ac.uk/eurocrisispress/2015/02/05/greek-elections-2015-the-beginning-of-the-end-or-the-end-of-the-beginning/">accused</a> previous Greek governments and opposition members of subservience to Germany’s austerity programme. His anti-austerity and pro-Euro platform won him the <a href="https://theconversation.com/syriza-risks-an-eu-exit-in-a-referendum-wracked-with-problems-44118">January 2015 elections</a> with 36% of the vote and almost half the seats in parliament.</p>
<p>However, Tsipras failed miserably in delivering this promise. After seven months of political theatre and <a href="https://theconversation.com/syriza-risks-an-eu-exit-in-a-referendum-wracked-with-problems-44118">erratic brinkmanship</a>, Tsipras signed the most austere bailout programme yet, lasting until 2018.</p>
<h2>Splinters on the left</h2>
<p>Calling the election, Tsipras spoke of two key signs of his government’s success – the latest austerity package and the return to normality of the Greek banking system.</p>
<p>This is yet another example of his demagogic politics: the man who railed against austerity is now defending a new bailout programme that will result in more austerity. The man who implemented the closure of the Greek banks and the imposition of capital controls boasts that Greek banks will be functioning as they should sometime in the future.</p>
<p>The decision to call this election was dictated mostly by internal party politics. Syriza brings together socialists, Maoists, communists and disillusioned social-democrats (who constitute the minority in the party).</p>
<p>The largest leftist group in Syriza, the radical pro-socialist and pro-Russia Left Platform led by Marxist Socialist MP <a href="http://www.theguardian.com/world/2015/jul/17/alexis-tsipras-reshuffles-cabinet-bailout-dissidents">Panayiotis Lafazanis</a>, could not accept Tsipras’ U-turn. Its members have rejected the government’s new pro-euro policy.</p>
<p>Left Platform’s MPs have been openly against Euro and EU membership. They want Greece to turn to Putin’s Russia for help. Tsipras has only been able to hold power thanks to support from the vilified opposition parties New Democracy, The River and PASOK.</p>
<p>Lafazanis has now announced plans to launch a new party called “Popular Unity”, which will call for the return to a national currency and immediate default on the Greek debt. It should be noted that the only other party openly supporting a Euro-exit is the Neo-Nazi <a href="https://theconversation.com/for-the-sake-of-greece-they-must-get-the-golden-dawn-trial-right-41395">Golden Dawn</a>.</p>
<h2>What next for Syriza?</h2>
<p>Syriza’s break-up marks the end of a symbiotic relationship between the Left Platform and the so-called “Proedrikoi” (in Greek: the men of the president).</p>
<p>These groups tolerated each other while in opposition. The hard-left Syriza members provided the organisational and activist militancy, while the Proedrikoi brought the populist flair of Tsipras. Even now, he remains the most popular party leader in Greece.</p>
<p>Tsipras seems determined to bring a more centrist position to Syriza, replicating PASOK – a party that traditionally combined leftist and nationalistic populism and continued commitment to the EU.</p>
<p>So far, it seems that his populist strategy is working, but nobody knows how the disillusioned Greeks will react on election day when Tsipras asks them to support him for another three years of austerity. It would be safe to assume, however, that like an ancient Greek demagogue, he will manage to persuade Greeks to trust him again in another uncertain trip towards normality.</p>
<p>The best option for Tsipras would be to abandon his populism and demagoguery. He should be honest with Greek voters about the need for painful and unpopular reforms, such as better tax collection, pension and labour market regulation, reduction of <a href="http://blogs.lse.ac.uk/europpblog/2014/10/27/lower-levels-of-clientelism-in-portuguese-politics-explain-why-portugal-handled-austerity-better-than-greece-during-the-crisis/">clientelism</a>, and an increase of Greek competitiveness to attract foreign investment.</p>
<p>This would be a truly revolutionary move – a word he and other Greek politicians have used and abused. As George Orwell wrote in his novel 1984: “In a time of universal deceit – telling the truth is a revolutionary act.”</p><img src="https://counter.theconversation.com/content/46496/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sotirios Zartaloudis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>After 206 turbulent days in power, Alexis Tsipras now presides over a coalition in tatters.Sotirios Zartaloudis, Lecturer in Politics, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/447292015-07-24T05:22:41Z2015-07-24T05:22:41ZThis is the end of the line for Syriza<p>Greek banks have <a href="http://www.theguardian.com/world/2015/jul/20/greek-banks-reopen-surprise-no-deluge-customers-greece">reopened</a> after weeks of closure. The patient and orderly way customers queued outside to use ATMS during the big shut down was an impressive sight, especially for those people who are fond of considering Greek people as somehow incapable of doing things right. </p>
<p>But nothing is harmonious. The queues outside the job centres are as long as ever, while many of the shops that shut down at the same time as the banks, still haven’t reopened. Anti-austerity and anti-governmental protests have started to take place for the first time since Syriza came to power. Dozens were arrested as the Greek parliament voted to accept a new bailout deal from Europe, based on the very terms that were <a href="https://theconversation.com/greece-votes-no-experts-respond-44231">rejected</a> just days earlier in a national referendum. <a href="http://www.skynews.com.au/news/top-stories/2015/07/23/thousands-protest-as-greece-votes.html">Fresh riots</a> took place as the parliament passed a law that allows the <a href="http://www.theguardian.com/business/live/2015/jul/22/business-live-greece-votes-on-further-bailout-reforms">confiscation of people’s homes</a>.</p>
<p>As Syriza burns its bridges with the general public, life for the majority of people has returned to hopeless normality – indeed, many people have spent more time talking about the <a href="http://www.theatlantic.com/photo/2015/07/wildfires-rage-across-greece/399092/">wildfires</a> that have broken out around the country than the troika in the past few days.</p>
<p>Greece’s ruling party might be called the coalition of the radical left but it seems to be rejecting a basic argument put forward by activists at that end of the political spectrum for years: It is impossible to transform this unequal, structurally and physically violent world into a better place if you try to do it via the institutional route. State governance, the parliamentary system, prime ministerial meetings and the rest are all the enemies of meaningful change. </p>
<p>Perhaps to a certain extent Syriza’s leaders were aware of the <a href="http://blogs.channel4.com/paul-mason-blog/syrizas-greece-chile-allende/3139">risks</a> they were taking when they sought to continue negotiating with Europe. They could end up crossing the political spectrum to join the rest of the austerity governments or, less likely, be overthrown for failing to comply with the requests of creditors and international bankers.</p>
<p>Players in the neoliberal system have never been afraid of drawing blood – and Greek history has quite a few examples. The left has often been brutalised in order to protect capitalist forms of governance. This is what happened during the <a href="https://en.wikipedia.org/wiki/Greek_military_junta_of_1967%E2%80%9374">military coup</a> of 1967. And although such extremes are unlikely these days, the bailout debacle has introduced Syriza’s leadership to real politics. </p>
<p>Just after prime minister Alexis Tsipras agreed to the terms presented to him by Greece’s international creditors, the IMF, itself part of the deal, <a href="http://www.bbc.co.uk/news/business-33531845">spoke out against</a> what was on offer. Greece, it argued, would never be able to pay its debts under the terms being put forward. Very soon followed the German minister of finance who <a href="http://www.politico.eu/article/german-finance-minister-schauble-undermines-greek-deal-grexit-merkel/">made it publicly known</a> that he does not think the programme proposed by his own government will work.</p>
<p>And yet this was the route taken by EU leaders. Syriza argues that the Greek government chose these new catastrophic terms and conditions instead of a much more catastrophic option. This is precisely how high-level politics works behind closed doors. There is blackmail and there are threats. One can only wonder why Syriza would have expected anything else.</p>
<p>Many believe Tsipras was forced into agreeing to the terms but Syriza is not innocent in this situation. It continues to glorify the eurozone and still prioritises paying back a supposedly national debt that ends up bailing out the Greek and European banking sector.</p>
<p>Moreover, Syriza’s belief in national unity also reflects the mistakes long made by the Greek left. The Greek population includes both massively impoverished social classes and a corrupted few who get richer every day. The latter group has no interest in an even slightly fairer system than extreme austerity for the poor and state generosity for the rich.</p>
<p>At least amid all the confusion there is clarity in one respect. Voters are seeing that Syriza’s parliamentary victory does not mean the end of austerity and poverty. Even Syriza’s own youth group <a href="http://neolaiasyriza.gr/%CE%B1%CE%BD%CE%B1%CE%BA%CE%BF%CE%AF%CE%BD%CF%89%CF%83%CE%B7-%CE%BD%CE%B5%CE%BF%CE%BB%CE%B1%CE%AF%CE%B1%CF%82-%CF%83%CF%85%CF%81%CE%B9%CE%B6%CE%B1-%CE%B3%CE%B9%CE%B1-%CF%84%CE%B7-%CF%83%CF%85%CE%BC/">publicly denounced</a> the new loan agreement. </p>
<p>The deep division between the government and people is opening again. Since Syriza’s election in January 2015, significant parts of the grassroots movement that opposed austerity – from solidarity and protest groups to immigrant support initiatives and unions – had remained somewhat inactive. They had slipped into a lethargic state, expecting a smoother state of affairs with Syriza at the helm of the austerity-ridden country. But the scales have fallen and those who were sympathetic to this new government are losing again faith in politics from above.</p><img src="https://counter.theconversation.com/content/44729/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dimitris Dalakoglou received funding from an ESRC Future Research Leaders grant for the project 'Crisis-scapes: The City at the time of Crisis' studying public spaces and infarstructures in Athens.</span></em></p>The deal is done with Europe, and the people aren’t happy about it.Dimitris Dalakoglou, Professor of Social Anthropology, Vrije Universiteit AmsterdamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/446272015-07-14T19:03:43Z2015-07-14T19:03:43ZGreece: a bad deal for everyone<figure><img src="https://images.theconversation.com/files/88340/original/image-20150714-21719-26g289.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Held by the throat.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/photophiend/8140308522/in/photolist-dpkd7W-oGJV5W-oYXZSc-dXAqAA-dYbMTm-93XMvQ-5qUW9K-oGJAnM-4mTYze-ed5TpW-mCfG4X-dJwb56-5wu5zd-2774B3-2seX2h-hQZFSi-qXpHVE-fcecoJ-fcesUU-34TEpd-atxoj9-pR4XML-dXAqzw-bsKxnf-eDyK3n-qYMGrS-qYUFbT-9UAhH6-9UAgdn-rge2sp-9UAeFc-9UDguW-9UDcKy-3LjxH-cWv8B-cWviX-cWv3s-cWv5r-5r3upB-cWw1e-cWvgV-cWwcf-d3sxnL-2yyfsg-2QA2pp-cWwgX-ewAiS-cWwiv-jdgkX-k2urB">Photo Phiend</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>The bailout deal <a href="http://www.independent.co.uk/news/world/europe/greece-debt-crisis-analysis-live-everything-you-need-to-know-about-the-greek-austerity-deal-10386529.html">negotiated between Greece and the eurozone</a> was yet another example of bad EU decision making. It only partially addresses the problems which the Greek economy faces. It also confirms the structural weaknesses at the heart of the European monetary union. If it does prove to be the end of the game, then it is one with no winners.</p>
<p>In simple terms, Greece has obtained a third bailout at terms which are not markedly better than those rejected by voters in <a href="https://theconversation.com/victory-for-politics-of-defiance-in-greece-means-the-real-crisis-starts-now-44317">last week’s referendum</a>. There is the small carrot, but no guarantee, of future debt reduction or a pause in debt repayments. In exchange Greece has surrendered its fiscal sovereignty to the EU. Indeed, it has capitulated other aspects of its economic governance. </p>
<p>The <a href="http://www.consilium.europa.eu/en/press/press-releases/2015/07/12-euro-summit-statement-greece/">Eurosummit statement</a> published on July 12, clearly sets out the stark ultimatum demanded by the hardliners at the summit – including Germany, Finland, Austria and the Netherlands – who welcomed “the commitments of the Greek authorities to legislate without delay.”</p>
<p>There follows a list of requirements to streamline and increase VAT, reform pensions, introduce quasi-automatic spending cuts in the case of missed fiscal surpluses, and a reform to streamline the judicial system. Some measures must be agreed by the Greek Parliament by Wednesday, and the rest by the July 22 at the latest.</p>
<h2>A punishment that fits the crime?</h2>
<p>In addition there needs to be a clear path, with clear milestones, towards pensions, energy and labour markets reform. The diktats also extend to liberalising Sunday trade, pharmacies, the sale of milk and bread. One wonders about this level of detail. It’s doubtful that it was driven by a need to improve the efficiency of various aspects of Greece’s retail sector. Some have speculated that it’s an attempt to <a href="http://blogs.channel4.com/paul-mason-blog/">punish Greece for the current crisis</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88342/original/image-20150714-21719-zk9w4f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88342/original/image-20150714-21719-zk9w4f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88342/original/image-20150714-21719-zk9w4f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88342/original/image-20150714-21719-zk9w4f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88342/original/image-20150714-21719-zk9w4f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88342/original/image-20150714-21719-zk9w4f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88342/original/image-20150714-21719-zk9w4f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88342/original/image-20150714-21719-zk9w4f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A hard slog for the people, and police, of Athens.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/biglebo/5885236310/in/photolist-9Y4nHy-5HyTGB-5HfsGp-5H4Vi7-9Y4opC-5HPXXo-5KNfa5-9Y1tXr-5KNiMw-eQe9KA-5HPXW7-5HjLjf-5HjMoz-5JD2DD-apvbML-9ky7XC-7hf7H2-5HjMpP-amXvmJ-5Hp6x3-5KJ1ig-5HKFw4-eQ22xK-q3m5bR-qtuBtY-q4fgW7-9Y1tHk-9Y4no5-uCaujN-eQ2AKD-8Ut4RW-9Y4nwN-bkq5F6-nPx1Vb-9Y4nQj-2abnCr-2abnDa-pBA9oR-5JHigL-aNNPBP-aNNPme-drtmKX-6Wi3rx-7hf7Dk-hCzwW3-5JHi7q-5JD2TF-uAQd5R-7gGU3z-9Y1tqB">yannis porfyropoulos</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>Greece also has to escalate its privatisation programme, which the Syriza government had opposed, and which will be used to reimburse loans obtained through the <a href="http://www.esm.europa.eu/">European Stability Mechanism (ESM) programme</a>. Some €50 billion will be used to recapitalise the banks and to reduce its debt-to-GDP ratio. At one stage of the negotiations it had even been suggested that this forced savings fund from privatisation might be held in Luxembourg, out of reach of the erring Greek government.</p>
<p>In exchange, Greece gets a third bailout from the ESM Programme of around €82-86 billion. It also allows for bridging finance of €12 billion to tide Greece over on its repayment obligations until early August. There is a suggestion that future lending might be possible including longer grace and repayment terms, but nothing firm.</p>
<h2>Hollow victory</h2>
<p>Objectively this doesn’t seem better than any deal which Alexis Tsipras’ government might have negotiated before the referendum. Yanis Varoufakis, the abrasive former Greek finance minister who resigned after the referendum vote to ease the negotiations <a href="http://www.abc.net.au/radionational/programs/latenightlive/greek-bailout-deal-a-new-versailles-treaty-yanis-varoufakis/6616532">compared the deal to the Treaty of Versailles</a>. It does raise the question of why prime minister Tsipras accepted the deal. The explanation is probably that he knows (and the hardline eurozone countries knew) that even though a majority of Greeks voted No (or rather “Oxi”) to previous bailout terms, they clearly did not want to leave the euro. There is little evidence that a Grexit would provide a better path for Greece out of this crisis. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88341/original/image-20150714-21696-575ss6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88341/original/image-20150714-21696-575ss6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88341/original/image-20150714-21696-575ss6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88341/original/image-20150714-21696-575ss6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88341/original/image-20150714-21696-575ss6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88341/original/image-20150714-21696-575ss6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88341/original/image-20150714-21696-575ss6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88341/original/image-20150714-21696-575ss6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Merkel has helped to set a precedent for future talks.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/indeedous/15228324852/in/photolist-pcF9r3-4XMoLe-6CXgVX-8dgPSB-kwugt2-aHtWsB-bB36ox-aNEEex-6qWxU4-8dB8fY-6r1KqQ-kwuFEM-kwuFq8-b27mUg-eaRxL2-fWtwBV-6qWEe4-7ezUNa-aNEE9p-aNEE4z-fWAmTH-b27nqB-b27v8F-b27pmP-7Xcwbm-6t4wA8-fbrRYd-fMavvS-b27m2v-6t8EX1-fWzm7q-nbJaQX-cHAsYC-727iTK-b27qkV-6bZbZX-nXEWET-b27oTr-aDtMhi-8pQZdg-tuP1xV-ePWuCJ-fWA1FQ-6QVSJ-aHtXtT-rWZxzg-hbXNa-b27qKn-6XxX9h-nBgujy">Philipp</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>So is this then a triumph for the eurozone? The EU comes out of this very poorly, on three grounds. First, whilst the reforms might (very, very slowly) improve the supply side of the Greek economy, there is little in the deal to address the lack of domestic demand which the resumption of austerity policies will impose. Indeed, the capital controls which are stopping Greeks getting their cash out of ATMs – and which will continue for a time – still act as a drag on the economy. </p>
<p>Second, the deal does not address the issue of debt sustainability, and this will have worsened during the last few weeks.</p>
<p>Third, and more importantly, this deal sets the scene for how future crises will be handled in the eurozone. We have seen division, acrimony, and the triumph of disunity. Exactly the opposite of the driving force behind the closer economic (and political) union which a shared currency was designed to create. Indeed, it’s worth remembering that countries such as France and Italy saw monetary union as a means of moving away from a fixed exchange rate mechanism which was seen to privilege Germany as the surplus country, forcing adjustment on the deficit countries. </p>
<h2>Homer comforts</h2>
<p>Instead, monetary union was designed in the image of Germany: with a fiscal decision-making system which still means countries with strong fiscal balances hold the upper hand. There is no formal mechanism to even up the economies of the weak and the strong, or any method to share the debt burden through mutualisation, as would be expected in a true federal state. The European Central Bank, meanwhile, is independent, but unlike the Bank of England or the US Federal Reserve, is not subject to scrutiny by a single central political authority in its defence of the currency and banking system. The eurozone is a fiscal confederation rather than a proper federation. </p>
<p>In the circumstances there are few plaudits for anyone. An immediate Grexit has been averted. But even if all goes as planned in Brussels, and the Greek (and German and Finnish) parliaments approve the deal, the resolution of the Greek debt crisis will take a long time. Longer than the years it took Odysseus to return to Ithaca in Homer’s poems. But, unlike Homer, there are few heroes to be found in this saga.</p><img src="https://counter.theconversation.com/content/44627/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anton Muscatelli does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A punitive deal which makes life hard for the Greek people and which sets dangerous precedents for the eurozone.Anton Muscatelli, Principal and Vice Chancellor, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/446172015-07-14T09:46:28Z2015-07-14T09:46:28ZHow Europe turned its back on Greece in the pursuit of profit<p>After five years of imposed austerity, Greece is on its knees. GDP has declined by 25%, unemployment has hit 26% (and youth unemployment more than 50%). And yet, all the EU has to offer is <a href="http://www.bbc.co.uk/news/business-33505555">more austerity</a> in exchange for a third bailout agreement.</p>
<p>Pension reform will be part of the deal agreed at the marathon meeting of eurozone leaders on July 12, as is further privatisation and <a href="http://uk.businessinsider.com/greek-deal-update-islands-and-assets-need-to-be-sold-to-raise-50-billion-2015-7?r=US">labour market liberalisation</a>. EU agents will be given oversight of Greek government spending, including a new independent fund that will monetise €50bn in state assets to repay debts.</p>
<p>Greece has essentially been pushed into accepting more of the same, even after voting to reject the terms on offer from Europe in a national referendum. There is no sign of European solidarity in this deal. It is a punishment handed down to Greece for daring to say no to austerity.</p>
<p>The EU was established on the principles of cooperation and mutual support – and many are now wondering what has happened to those aspirations. But solidarity fell by the wayside some time ago in Europe. This is just the most recent example of how European integration today is about profit maximisation for capital – not about cooperation between European people.</p>
<h2>Good intentions</h2>
<p>When the EU was established in the 1950s, it was based on mutual economic support in the reconstruction after World War II. Politically, it was intended to ensure that France and Germany, in particular, would never again go to war against each other.</p>
<p>The initial success was impressive. France and Germany quickly moved from being arch enemies to the axis of further integration. The whole EU prospered economically so much, in fact, that other countries were quick to seek membership too.</p>
<p>Greece joined in 1981, and Spain and Portugal followed in 1986. In all three cases, significantly lower GDP levels made clear that they were not economically ready. </p>
<p>Yet the others accepted them as new members because they felt it was important to provide these young democracies, which had just overcome military dictatorships, with political support and stability. <a href="http://blogs.lse.ac.uk/greeceatlse/2014/11/26/does-the-greek-crisis-prove-the-countrys-entry-into-the-eec-in-1981-was-a-mistake/">Solidarity overrode economic concerns</a>.</p>
<p>From the mid-1980s onwards, economic integration deepened with the <a href="http://www.civitas.org.uk/eufacts/FSTREAT/TR2.php">internal market project</a> as well as <a href="http://www.civitas.org.uk/eufacts/FSECON/EC4.php">Economic and Monetary Union</a> including the introduction of the euro – but, at least initially, solidarity with less advanced regions was not forgotten.</p>
<p>The 1993 <a href="http://www.eurotreaties.com/maastrichtec.pdf">Maastricht Treaty</a> included the so-called cohesion fund, which was specifically intended at the time to support Ireland, Greece, Portugal and Spain in their efforts to catch up economically with the more advanced EU members. Equally, further economic integration was supposed to go hand in hand with the development of a <a href="http://gsp.sagepub.com/content/7/3/271.abstract">social dimension</a>, guaranteeing minimum social and workplace rights across the EU.</p>
<h2>The age of profit maximisation</h2>
<p>The 1990s marked a clear break away from solidarity in the EU. Even though some progress was made in areas such as parental leave, the social dimension of the EU was never fully developed. Broader, neoliberal restructuring quickly started to dominate.</p>
<p>Full employment was mentioned in the 2000 <a href="http://www.europarl.europa.eu/summits/lis1_en.htm">Lisbon Strategy</a>, but this was to be achieved mainly through supply-side measures such as training, not through state investment in the economy.</p>
<p>Several decisions by the European Court of Justice during the 2000s further undermined the social dimension. In the so-called <a href="http://www.eurofound.europa.eu/observatories/eurwork/articles/unions-fear-ecj-ruling-in-laval-case-could-lead-to-social-dumping">Laval case</a>, for example, the free movement of services across borders was prioritised over the right of Swedish workers to blockade a construction site where 14 Latvian workers were employed on wages of around 40% less than their Swedish counterparts. Supporting the profitability of the company was considered to be more important than social justice, minimum standards and the right to strike.</p>
<p>Then, in 2004, eight countries from Central and Eastern Europe joined the EU together with Cyprus and Malta. These countries were economically even further behind the EU average than Greece, Spain and Portugal had been in the 1980s. </p>
<p>Instead of providing extra support, the EU imposed a more radical, market-oriented variant of neoliberalism onto the new members than for existing members. As it enlarged to the east, the EU did not offer substantial financial aid, the free movement of labour, or the full amount of subsidies available to farmers within the <a href="http://cnc.sagepub.com/content/30/1/57.abstract">Common Agricultural Policy</a>. Having just overcome Communist, authoritarian regimes, there were no forces in Central and Eastern Europe able to demand compromises – just as had been the case for Western Europe after World War II. </p>
<p>In its external, free-trade policy too, the EU moved away from relations of special support for developing countries. For example, the <a href="http://ec.europa.eu/development/body/cotonou/lome_history_en.htm">Lomé Conventions</a> included preferential arrangements for countries from Africa, the Caribbean and the Pacific. In 2006, however, this was replaced with the new free-trade strategy, Global Europe, which demanded <a href="http://media.waronwant.org/sites/default/files/global%2520europe%2520-%2520a%2520critique.pdf?_ga=1.244190977.562478043.1433798730">full reciprocity</a> in market opening from developing countries and emerging economies alike. Again, solidarity was replaced with a focus on profit maximisation.</p>
<p>Given this history, the lack of solidarity being shown towards Greece now should not come as a surprise. For quite some time, EU policies have been dominated by neoliberal restructuring and a focus on profit maximisation for capital.</p>
<p>When the <a href="https://theconversation.com/uk/topics/eurozone-crisis">eurozone crisis</a> hit, it quickly became a justification for austerity, undermining of trade union rights (see, for example, the <a href="http://www.worker-participation.eu/National-Industrial-Relations/Countries/Portugal/Collective-Bargaining">erosion of collective bargaining</a> in Portugal), privatising state assets and public sector cuts. The purpose was to shift the general balance of power in society towards capital.</p>
<p>The idea of solidarity has been lost in European integration. Neoliberal capitalism has no room for solidarity with workers, no understanding of the importance of social justice and equality in society. Neoliberal capitalism does not consider balanced development across the EU an important objective.</p><img src="https://counter.theconversation.com/content/44617/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andreas Bieler is affiliated with the University and College Union (UCU) and a member of its National Executive Committee. </span></em></p>Since the 1990s, the EU has been less about social integration and more about neo-liberal values.Andreas Bieler, Professor of Political Economy, University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/446072015-07-13T16:12:28Z2015-07-13T16:12:28ZGreece: a Europe forged in one crisis may have laid the foundations for the next<figure><img src="https://images.theconversation.com/files/88229/original/image-20150713-11836-bnmkjk.jpg?ixlib=rb-1.1.0&rect=28%2C75%2C1077%2C668&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Hitting the wall. Greece's future is still in the balance.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/eskedal/4838057577/in/photolist-8nwiXP-pn44CZ-6Z78ra-vxUApG-4EhWHe-bUbMB5-ppizg-5rBoRW-R1wGZ-2QGEAq-ccWu7E-5CfSJu-7J66J6-8HRsua-87n5uR-5QYDen-5skhZC-8vs85b-5omYGS-4LemDG-3uHTN-n41mm-cLDkmQ-2BvpSX-4WmZHn-6pehGK-9N1nsW-9N1sKm-9MXC5X-7yPWCA-36dJnH-4wjLvT-5Gqn4V-j76LuY-5BSusK-2RjxWB-4bXkBX-mSGWu6-8p8LFS-fotULQ-8iSQ4G-6emPZH-pemDrK-54mrRw-56SC1-4oJLcj-9XgfHf-8dCBG7-ea6St-atQ4YT">Erik Eskedal</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Greece has just experienced a <a href="http://www.theguardian.com/business/2015/jul/13/athens-and-eurozone-agree-bailout-deal-for-greece">nasty reality check</a>. For Europe, the reckoning might simply lie a little further down the road. The Syriza party and prime minister Alexis Tsipras secured a triumph in the elections of January 2015 based on promises to “tear up” the bailout agreements and put an end to austerity. Until a week ago, when the notorious referendum took place, the party and its leader seemed to stick by their conviction that an aggressive stance towards EU partners should and could broker a better deal for Greece, away from half-hearted compromises. This morning it became obvious that this was not possible. </p>
<p>The Greek government <a href="https://theconversation.com/with-hopes-low-tsipras-may-have-just-done-the-best-deal-possible-for-greece-44613">had to sign an agreement</a> not too different from those to which previous governments agreed and which were opposed by Syriza – in fact, some of the measures the Greek parliament is being asked to pass were part of previous agreements but were never implemented. Was Syriza naïve? Were they populists? Probably a combination of the two.</p>
<h2>Grexit not dead yet</h2>
<p>At least for now, Tsipras seems like a leader who found the courage to assume responsibility and came to realise – the hard way – that the EU is all about compromise. Tsipras has now two choices: either follow the steps of previous Greek governments, equivocate and eventually fail taking the country with him or truly support the plan and try making a positive change out of a very difficult deal. Despite the deal, a Greek exit from the euro is closer than ever, particularly if he chooses the former.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88240/original/image-20150713-11825-1193qio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88240/original/image-20150713-11825-1193qio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88240/original/image-20150713-11825-1193qio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=226&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88240/original/image-20150713-11825-1193qio.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=226&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88240/original/image-20150713-11825-1193qio.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=226&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88240/original/image-20150713-11825-1193qio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=284&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88240/original/image-20150713-11825-1193qio.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=284&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88240/original/image-20150713-11825-1193qio.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=284&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Mobilizing their popularity. Syriza have an edge.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/laoulaou/8044956736/in/photolist-dfUvmC-dfUsC3-dfUrGa-eLMTW8-eLNgKF-eLNaQk-eLZD1Y-eLZL3U-eLNpn4-eLN7m8-eLN8Mp-eLZqZY-eLNd8D-eLMV3V-eLN4P2-92xUXb-dfUso5-9Td7kT-5HppQS-5HD8C3-5Hk7QD-7hf7x6-aunswi-5HzcA8-5HzcjT-9LTv2z-9LTvuK-9LWiZs-9LTuug-9LWgGy-5Lkkxi-9Y1Cya-9P2R1n-5HRY2w-5HproU-9P5ytb-9SFfju-9P5ChY-9P2JbV-9P5BnW-9P5D11-9LTwHR-9P5AAw-9LTypv-5HRSQd-5HpqkE-5HyMgn-5HMxRc-9LWgk3-9TdbLt">George Laoutaris</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Something that could help Tsipras choose the latter is that his government is the first to enjoy very wide political support, at least for the moment. Because of the high stakes and high tension of the last few weeks, all political parties with a clear European orientation have <a href="http://www.ft.com/cms/s/0/812796a2-1d29-11e5-ab0f-6bb9974f25d0.html">backed</a> Tsipras in the negotiations and seem to support the agreement. This is a weapon that no other government had before in promoting reforms. A Syriza-led government is also the best option for stability in Greece, given the popularity that Syriza and Tsipras enjoy and which should be respected. </p>
<p>But this does not mean that Tsipras would not face opposition or that anti-austerity or populism in Greece has ended. In fact, it is quite the opposite. </p>
<h2>Eurosceptics</h2>
<p>A sizeable proportion of Syriza MPs, including some of the party’s ministers, have made clear <a href="http://www.bbc.co.uk/news/world-europe-33362975">they do not support the agreement</a>. The next few days will show whether this group will take control over the anti-austerity camp. At the same time, others, like members of the government coalition partner Independent Greeks or even far-right party Golden Dawn, remain opposed to the agreement. What happened this weekend would probably only fuel their euroscepticism. </p>
<p>But the way this deal was struck could have implications far beyond Greece. The nature of discussions between eurozone elites uncovered once more the huge distance between what goes on in Brussels and the European citizens. While discussions among the finance ministers of the eurogroup and at the Eurosummit were taking place, social media was <a href="https://twitter.com/hashtag/ThisIsACoup?src=hash">filled with frustration</a> over the apparently rather aggressive form of negotiations. International media, meanwhile, were keen to underline the lack of solidarity shown by eurozone countries, <a href="http://www.independent.co.uk/news/world/europe/greek-debt-crisis-who-will-trust-germany-after-this-asks-paul-krugman-10384402.html">especially Germany</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88239/original/image-20150713-11816-yu4czo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88239/original/image-20150713-11816-yu4czo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88239/original/image-20150713-11816-yu4czo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88239/original/image-20150713-11816-yu4czo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88239/original/image-20150713-11816-yu4czo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88239/original/image-20150713-11816-yu4czo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88239/original/image-20150713-11816-yu4czo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88239/original/image-20150713-11816-yu4czo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Farage in action at the European Parliament.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/european_parliament/10438765746/in/photolist-gUrpnL-dSNJru-8yUh6M-gUru6x-gUruzi-bNzn8g-bpMZGd-bCGVx8-bpMZAC-btZ44g-nTSpNg-nTTf5z-796zHf-ar74pR-gUsf1V-o9jsV9-bpMZE9-dv25nB-gUrvfX-74x5z3-gUrTiL-74taDB-74sJAK-gUruQZ-gUrnAh-gUrux4-gUrmXy-gUrug2-gUrq3o-gUruV8-gUrus4-gUrnn1-gUseZT-gUrnDy-dSDiBx-rfSwoD-nL63XL-obhpa1-o9jsRm-od8LvV-o9jsY5-obhp1o-obmPoM-74tBqX-74sW4Z-74xKtw-74wSBJ-74xqZU-74wQfu-74tLnk">European Parliament</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>European leaders seem oblivious to that and the impact that this whole process could have had on euroscepticism across Europe. The leader of Britain’s anti-EU UK Independence Party, Nigel Farage, <a href="http://www.independent.co.uk/news/uk/politics/greek-debt-crisis-if-nigel-farage-was-in-athens-hed-be-on-the-streets-protesting-10384714.html">was quick to comment</a> that if he was a Greek politician he would vote against this deal, and if he was a Greek who voted No in the referendum he would be protesting in the streets. Just a year after the European elections in 2014, there is a risk of a new wave of euroscepticism which the EU will have to address in the long term.</p>
<h2>Crisis management</h2>
<p>Jean Monnet, the French political economist, said in 1976: </p>
<blockquote>
<p>Europe will be forged in crises, and will be the sum of the solutions adopted for those crises. </p>
</blockquote>
<p>Indeed, the EU is the child of World War II and, after that, has evolved through many other crises. One could imagine a similar social media frenzy had the means existed during the <a href="http://www.theguardian.com/world/2005/jun/02/eu.politics">failed European constitution of 2005</a> or even the so-called <a href="http://ballstatehistorydept.org/digitalhistory/studentprojects/mbdavis/623_Website/code-4/index.html">“empty chair” crisis of the mid-1960s</a> when France withdrew its representatives from the European Commission. </p>
<p>Let’s hope this crisis improves the EU and allows it to progress; however much this latest crisis has been an important one for the public debate, it is by no means the first – and it probably contains the seeds of the next.</p><img src="https://counter.theconversation.com/content/44607/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>George Kyris does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What might feel like a victory this morning for eurozone leaders and lenders has only served to feed a eurosceptic beast.George Kyris, Lecturer in International and European Politics, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/446132015-07-13T12:44:25Z2015-07-13T12:44:25ZTsipras may have just done the best deal possible for Greece<p>When Alexis Tsipras walked into the meeting with the remaining 18 eurozone leaders at the weekend, he may have had in mind, not a line from Greek antiquity, but perhaps one from the Italian middle ages. Dante Alighieri’s version of hell had a simple message at its gate: “Abandon all hope, ye who enter here”. It was a very difficult, and very long, meeting for Tsipras, but my first impression is that he managed the best he could under extremely difficult circumstances.</p>
<p>For a start, the Greek prime minister had to explain to eurozone leaders why he was pushing for an economic agreement which, at the end of the day, had been overwhelmingly <a href="https://theconversation.com/after-the-no-vote-greece-faces-its-last-judgement-44247">rejected in a referendum</a> by his own people. This raised a significant issue of trust and credibility. Despite Tsipras having won Greek parliamentary support (251 out of 300 Greek MP’s gave him the “green light” to strike a deal; perhaps any deal that would keep Greece in the euro) was he trustworthy to implement what was about to be agreed? </p>
<h2>Staring into the abyss</h2>
<p>In fact, Tsipras had very little room for manoeuvre. Greek banks have been closed since late June, capital controls are firmly in place and cash reserves available at Greek banks are at an all-time low of around €500m (only 0.5% of the €120 billion deposits of Greek citizens “sitting” in Greek banks, which, due to capital controls, Greeks cannot withdraw). Tsipras knew that, without a deal, Greek banks would definitely collapse. To make things worse, Greece had already defaulted on an <a href="https://theconversation.com/nine-things-to-know-about-greeces-imf-debt-default-44097">IMF debt repayment of €1.6 billion</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88222/original/image-20150713-11816-1lj95ep.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88222/original/image-20150713-11816-1lj95ep.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88222/original/image-20150713-11816-1lj95ep.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88222/original/image-20150713-11816-1lj95ep.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88222/original/image-20150713-11816-1lj95ep.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88222/original/image-20150713-11816-1lj95ep.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88222/original/image-20150713-11816-1lj95ep.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88222/original/image-20150713-11816-1lj95ep.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A line in the sand. The banks left Greek hands tied.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/afilitos/19103922038/in/photolist-v79Asb-szYSDE-shS25Q-smfxzc-dFwxSq-9NhnCP-9Y2PWN-9otpxM-8aERUW-tzwWxV-ryeR2d-s9ECnq-s7mLvg-spyBiM-spqRyh-skm43Y-snAHjT-rqQ4BT-skkSRA-rqPQAT-snCNCD-rqCwq7-e46z4y-9aKNCR-7V59SY-7fq1Xc-6sUQfQ-6bEufz-5HrvTc-5HrvDt-5HvzjA-fm5Yk-7yKiEj-5BK4yX-5jpRy3-4QRW53-jy35V">afilitos</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>To add further to the drama, Greece needs to make a €455m debt repayment to the IMF today and a further €3.5 billion debt <a href="http://graphics.wsj.com/greece-debt-timeline/">repayment to the ECB in seven days</a>. The implication of all this is that Tsipras desperately needed an agreement to enable the ECB to inject additional Emergency Liquidity Assistance (ELA) to Greek banks to support their cash buffer and save them from collapse. He also needed to secure a “bridge loan” from the institutions to pay back both the ECB and the IMF.</p>
<h2>Getting it done</h2>
<p>Details of the agreement are still emerging so I will discuss briefly some of these the way I understand them:</p>
<p>Firstly, Greece needs to pass, within the next 48 hours, through the Greek parliament (possibly as one parliamentary bill) privatisations and a number of structural reforms to which the current government had thus far objected. This is supposed to be some type of “goodwill” gesture to Greece’s partners in order for “Troika” money to start flowing into the country. This is a very big challenge for the SYRIZA-ANEL government and it is very likely to prove hugely damaging for what was always an unusual coalition. It is also a big challenge for a number of SYRIZA MPs (including energy minister Panagiotis Lafazanis) who prefer a return to the drachma rather than an austerity-oriented deal with the Institutions. </p>
<p>Tsipras will have to pass the parliamentary bill with the help of the pro-European parties (ND, Pasok, Potami) at the same time while trying to reshuffle his government by relying (again) on pro-European parties. The bill may pass, but the government’s days may be numbered.</p>
<p>Further – and contrary to the will of Tsipras – it appears that the International Monetary Fund (IMF) will stay firmly into the picture as Greece’s lender. Tsipras (and his colleagues) have consistently opposed IMF involvement on the grounds that it is an outsider to European matters. The irony of the matter, of course, is that <a href="https://theconversation.com/greece-when-is-it-time-to-forgive-debt-44022">debt relief</a>, which Tsipras has been asking for, has been repeatedly promoted by the IMF. After all, the IMF emphatically admitted (only three days prior to the referendum) <a href="http://www.theguardian.com/business/2015/jun/30/greek-debt-troika-analysis-says-significant-concessions-still-needed">that Greek debt is unsustainable</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/88221/original/image-20150713-11831-qdm86c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/88221/original/image-20150713-11831-qdm86c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/88221/original/image-20150713-11831-qdm86c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/88221/original/image-20150713-11831-qdm86c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/88221/original/image-20150713-11831-qdm86c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/88221/original/image-20150713-11831-qdm86c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/88221/original/image-20150713-11831-qdm86c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/88221/original/image-20150713-11831-qdm86c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A victory? Alexis Tsipras.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/guengl/19338769219/in/photolist-vsUfkv-vsLT21-vsLRyy-vKo2ue-uNvWyp-vJN45U-vH362h-vKkQsP-vKkQni-uNnGXx-uNnGRv-vsL17r-vKBtkn-uNnGkR-vJwh4m-uNfdKz-vK7gFT-vGNvEy-uN6PEJ-vKtYbe-vGNvC9-vsCvrp-vJwgLC-vGNvrs-uNfdm8-uN6Ped-vK7g88-vGNv6s-vGNuXG-uNfcUB-uN6K7q-vsv4ih-vsv4yW-vsv4uN-vK7cdV-vsCqJt-vK7c96-uN6JRL-vsCqHX-uN6JKJ-uN6JLq-vGNqVo-vGNqTu-vsCqyP-vsv4cd-uN6Jxu-uNf8KK-vsv3PG-vswABX-vspfk7">GUE/NGL</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
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<p>Greece’s debt currently stands at around 178% of its GDP. Eurozone leaders have repeatedly rejected any idea of a haircut in the face value of Greek debt. The current agreement opens the door, however, for debt relief by pushing (subject to Greece proceeding with privatisations and structural reforms) its <a href="http://www.bankofgreece.gr/Pages/en/Bank/News/Speeches/DispItem.aspx?Item_ID=319&List_ID=b2e9402e-db05-4166-9f09-e1b26a1c6f1b">average debt maturity</a>, <a href="http://www.ft.com/cms/s/0/6e5532c0-a310-11e4-ac1c-00144feab7de.html#axzz3flXQedch">currently at 16.5 years</a> further into the future. </p>
<p>This, on its own, will be a significant debt relief which Tsipras can sell to his people. In maths, the <a href="http://mathworld.wolfram.com/EuclideanAlgorithm.html">Euclidean algorithm</a> has been used for reducing fractions to their simplest form. Tsipras – with the instrumental help of his polite and down-to-earth finance minister <a href="http://www.telegraph.co.uk/finance/economics/11566624/Euclid-Tsakalotos-Yanis-Varoufakis-Greece-new-finance-minister.html">Euclid Tsakalotos</a> – will be able to claim that, subject to passing the parliamentary bill through the Greek parliament and reshuffling his government into a viable and operational group, he has actually pulled off a trick which will reduce the Greek debt-to-GDP ratio to its simplest sustainable form.</p><img src="https://counter.theconversation.com/content/44613/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Costas Milas does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Backed into a corner as the banks reached the brink, the Greek prime minister may have fashioned some sort of success, and the prospect of something approaching debt relief a little down the line.Costas Milas, Professor of Finance, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/443822015-07-08T05:24:01Z2015-07-08T05:24:01ZWant to know how Greeks see the future? Get in the ATM queue and ask them<p>If one was following Greek and international media, it might have seemed as though the difference between the numbers in the Yes and No camps in the Greek referendum was tiny. However, as most ethnographers of Greece would be able to tell you, especially the ones who have spent <a href="http://www.crisis-scape.net/">two years doing research in Athens during the crisis</a>, the No voters were in the overwhelming majority. And so it ultimately proved in the result. </p>
<p>One of the most grotesque moments in the festival of pro-Yes propaganda hosted by Greek TV channels came when a Mega Channel journalist attempted to interview a pensioner in Athens about his views on the debt crisis. The journalist had been expecting the elderly man to complain about the terrible queues at the banks. Instead, the man began to comment on how the crisis has caused thousands of suicides and that he supported the decision to let the people decide. Having failed to get the answer he was looking for, the journalist simply pushed the man out of the frame and quickly began <a href="https://www.youtube.com/watch?v=UjMBq59fRV0">talking over him</a>, while the camera panned away. </p>
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<p>Probably one of the best places to understand what is going on in Greece at the moment is in the queues forming at the ATMs of closed banks. People have to wait longer than usual to withdraw cash, and with a daily limit of €60, they are queuing more often, so while there, they just chat with each other spontaneously. Others join in the conversation until you have a small assembly. People address the “audience” loudly, agree and disagree, add comments on top of the main debate and splinter off into their own, smaller groups in the queue. Sometimes people stick around to talk even after they have withdrawn their <a href="https://euobserver.com/economic/129359">60 euros</a> from the ATM.</p>
<p>They talk about their fear but also about their anger. They are angry at the private TV channels and newspapers that spread fear ahead of the vote. They are angry at Greece’s creditors and resent the euro as a currency. In the queue, the conversations are often about the real value of the euro. People still loudly translate their 60-euro allowance into the old Greek currency. They talk about how much they could buy with 20,000 drachma and how little they can get with 60 euros.</p>
<p>They also remember the last time a significant percentage of people in Greece lost substantial amounts of their savings. That was in 1999 when the Athens Stock Market collapsed, just before Greece joined the euro. The government, led by technocrat Costas Simitis had liberated the financial markets as part of the eurozone integration process.</p>
<p>People were encouraged to invest their savings in the financial market via governmental (and TV) propaganda. Small stock market agencies sprung up in towns and villages to help them on their way. The TV sets in the traditional Greek coffee shops broadcast stock market sessions and pink newspapers appeared on the tables. A country with 10 million people was suddenly home to more than 1 million stock-market investors.</p>
<p>Then came <a href="http://tvxs.gr/news/%CE%B5%CE%BB%CE%BB%CE%AC%CE%B4%CE%B1/%CF%80%CE%B1%CF%81%CE%B1%CF%80%CE%BF%CE%BC%CF%80%CE%AE-%CF%83%CE%B5-%CE%B4%CE%AF%CE%BA%CE%B7-16-%CE%B1%CF%84%CF%8C%CE%BC%CF%89%CE%BD-%CE%B3%CE%B9%CE%B1-%CF%84%CE%B7%CE%BD-%CF%85%CF%80%CF%8C%CE%B8%CE%B5%CF%83%CE%B7-%CF%84%CE%BF%CF%85-%CF%87%CF%81%CE%B7%CE%BC%CE%B1%CF%84%CE%B9%CF%83%CF%84%CE%B7%CF%81%CE%AF%CE%BF%CF%85">the crash</a>. The market collapsed under the weight of several corporate manipulations and investors saw their savings vanish.</p>
<p>At the time, there was enough going on to distract people from the blow. The change of currency to the euro and the devaluation effect made the loss of trillions of drachmas look relatively less significant. People still recall how things that cost 100 Drachma or less quadrupled in value overnight and suddenly cost a euro.</p>
<p>This time around, there are no distractions. But although people fear losing their deposits while the banks remain closed – <a href="https://en.wikipedia.org/wiki/2012%E2%80%9313_Cypriot_financial_crisis">as happened in Cyprus</a> – the fact is, very few people have much of a deposit to lose.</p>
<p>Beyond what people are talking about as they queue for the ATM, social theory teaches us that large groups with little to lose are a traditional danger for capitalist projects.</p>
<p>The threat they pose was temporarily diffused by the referendum, as they had the chance to express their discontent, but the result makes it clear that they will not be placated for long. The resounding No vote has emerged from a population with no faith in the neoliberal economic system or the mainstream media that presents it to them. They voted no because people are ready to risk losing things in order to win a new political and social deal– especially when what they have to lose doesn’t amount to much.</p><img src="https://counter.theconversation.com/content/44382/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dimitris Dalakoglou received funding from an ESRC Future Reearch Leaders grant for the project 'Crisis-scapes: Transformations of Public Spaces in Athens'</span></em></p>Talk on the street is that nothing short of revolution will do after the referendum.Dimitris Dalakoglou, Professor of Social Anthropology, Vrije Universiteit AmsterdamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/443172015-07-06T10:14:49Z2015-07-06T10:14:49ZVictory for politics of defiance in Greece means the real crisis starts now<p>Now that the Greek referendum has produced a <a href="http://news.sky.com/story/1513901/greece-referendum-no-vote-what-does-it-mean">decisive No vote</a>, never mind what happened before. The real crisis starts now. </p>
<p>It has to be recognised that the Greek people faced a difficult choice. The referendum itself was a political gambit by the Syriza government to seek to split the eurozone governments and obtain a better deal. The politics of defiance has won. It was a major gamble, so will it pay off? </p>
<p>There will be some EU leaders, particularly in France and Italy, who will urge a return to the negotiating table. But the odds which the Greek government now faces are stiff. One political commentator wryly told me in recent days that Syriza has achieved what few others managed: to unite the eurozone governments against it, even those most critical of austerity policies. In my view there is now an 80% probability of Grexit. </p>
<h2>The Greek reality</h2>
<p>The IMF’s debt sustainability report, which <a href="https://www.imf.org/external/pubs/ft/scr/2015/cr15165.pdf">was published</a> on June 26 just days before the vote, shows how dire Greece’s fiscal predicament is. Just a year before, the fund projected the country’s debt/GDP ratio falling from 175% in 2013 to around 128% in 2020. But the poor growth performance and poorer primary fiscal balances have worsened the outlook such that the ratio is now expected to be over 150% by 2020. </p>
<p>Worse is still to come: the report does not yet reflect the negative impact of the current banking closure and capital controls, which will have severely affected economic activity, and numerous commentators have said that the IMF’s growth forecasts for the country are too optimistic.</p>
<p>Although one can partly blame Syriza’s intransigence for the latest economic setbacks, the result of the referendum should be a wake-up call to the eurozone economies that fiscal austerity alone cannot be a solution. Greece’s <a href="http://www.tradingeconomics.com/greece/gdp">GDP decline</a> of more than 27% between 2008 and the first quarter of 2015 is one of the worse peacetime economic declines in history. </p>
<h2>Entrenched warfare</h2>
<p>Following the No vote, the rhetoric on both sides will be turned up another notch, having already sharpened in recent weeks. Northern-European critics <a href="http://www.cesifo-group.de/cesifo/newsletter/0515/Original_Sinn_May_2015.html">point out</a> that none of the reforms to pensions or to the economy, such as privatisations, which were agreed in 2011 have been carried out. </p>
<p>There were <a href="https://www.imf.org/external/pubs/ft/scr/2015/cr15165.pdf">supposed to be</a> €23bn (£16bn) of proceeds from privatisation over the 2014–22 period, and further ones which the Greek government promised but which have since been taken off the table. The IMF now notes that there have been privatisations of €3bn in the past five years and forecasts proceeds of only €500m a year over the next few. </p>
<p>In contrast, critics of the <a href="http://www.bbc.co.uk/news/business-15149626">troika</a>’s approach <a href="http://www.project-syndicate.org/commentary/greece-referendum-troika-eurozone-by-joseph-e--stiglitz-2015-06">argue that</a> Greece’s economy has lagged behind because of a basic lack of domestic demand, and that aiming to run a 3%-4% primary surplus in the national finances is incompatible with any sort of economic recovery. </p>
<p>This polarised debate disguises that the better path probably lies in the middle: Greece does need to improve the supply side of its economy by investing in new technologies and making its existing sectors more competitive. But in the meantime, demand needs to be sustained and you need more than three to four years to radically restructure an economy. In simple terms Greece needs another bailout (probably about €50bn), this time with a major debt restructuring (about €80bn, maybe more) to ensure that a new medium-term economic plan can be adopted which has a chance of working.</p>
<p>That’s what the bargaining should be about, and following the referendum the Tspiras government has a strong mandate. But this will require flexibility so far unseen among the eurozone governments – many have already said publicly that a No would lead to a Greek exit from the euro. Negotiating a new bailout will also take time. </p>
<h2>The liquidity threat</h2>
<p>But in the short run the main binding constraint is the banking shutdown. It is rumoured that one Greek bank is almost running out of cash, <a href="http://www.telegraph.co.uk/finance/economics/11715198/greece-crisis-live-no-yes-referendum-polls.html">and that</a> the whole banking sector has no more than €500m-€1bn left to dispense: about three days’ worth of cash. Without political cover from the eurozone governments, the European Central Bank (ECB) cannot reverse its move on June 28 to cap the Emergency Liquidity Assistance programme, which led to the closure of Greece’s banks the following day. </p>
<p>Having already received €89bn in assistance to keep functioning, the banks can’t resume business unless the cap is removed. Without additional ECB support, there would quickly be serious dislocation in the economy as businesses and government cannot pay salaries, and key imports like food and medicines cannot be guaranteed. Many businesses would cease to operate. So if the eurozone does not restart negotiations then Grexit could follow, de facto if not de jure, as the banks run out of cash. </p>
<p>If the eurozone shuts out Greece from ECB assistance, the Greek government would then be forced to issue promissory notes or IOUs: in essence the precursor of a new Greek currency, to which the Greek Central Bank and the Greek banks would need to be parties. Indeed, outgoing finance minister Yanis Varoufakis <a href="http://www.telegraph.co.uk/finance/economics/11719688/Defiant-Greeks-reject-EU-demands-as-Syriza-readies-IOU-currency.html">has already indicated</a> that this is a possibility. In theory this exit from the euro could be reversed if an agreement were reached with the eurozone.</p>
<p>But a dual currency limbo cannot last long. Very quickly it would make sense to convert all bank accounts, prices and contracts to the new currency. Because it would take time to issue new drachma notes, euro notes would continue to circulate alongside IOUs. But people would seek to hide them in the knowledge that the new drachma would quickly devalue, probably by about 50%. It is also likely that the euro would eventually stop being legal tender and tight capital controls would operate, with a forcible conversion of euro notes to new drachma notes. </p>
<p>For the creditors, Grexit means Greece could walk away from its debt, which is mostly held by governments rather than European banks. This will have a negative fiscal impact on large eurozone countries like Germany, France, Italy and Spain. But European banks have built up capital reserves in the last five years and should be able to withstand the shock of the sovereign bonds of large eurozone countries that they hold on their balance sheets plunging in value as a result. </p>
<p>For the eurozone, the key will be to prevent a contagion through increasing debt costs to other weaker members such as Spain, Portugal, Ireland and Italy. The ECB will need to use whatever it takes to defend these countries, including its <a href="http://lexicon.ft.com/Term?term=outright-monetary-transactions-OMT">Outright Monetary Transactions programme</a>, under which it can buy their sovereign bonds.</p>
<p>For Greece, debt relief would follow an exit from the eurozone. But there are risks, not least that it would have violated its adherence to EU treaties by exiting the euro. So an exit from the EU, though seemingly implausible, cannot be excluded. </p>
<p>And in spite of having a currency with a much lower value following a Grexit, there might be little benefit to net exports for Greece. This is because the Greek economy <a href="http://www.ft.com/cms/s/1bf65f00-1f29-11e5-ab0f-6bb9974f25d0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F1bf65f00-1f29-11e5-ab0f-6bb9974f25d0.html%2523axzz3f2HiHl5L%3Fsiteedition%3Duk&siteedition=uk&_i_referer=">is quite closed</a>, with net exports less responsive than might be expected to a devaluation. Greece would also need to maintain a fiscal surplus with no short-run external finance sources. So for Syriza this risks being a pyrrhic victory. For the eurozone and the EU, meanwhile, this is their biggest ever challenge.</p><img src="https://counter.theconversation.com/content/44317/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anton Muscatelli does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Greek rejection of the bailout means it’s time to brace ourselves: Grexit is now an 80% probability.Anton Muscatelli, Principal and Vice Chancellor, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/442892015-07-05T21:29:36Z2015-07-05T21:29:36ZGreece votes No – now Syriza must clarify what that really means<p>With the votes counted, <a href="http://www.bbc.co.uk/news/world-europe-33403665">more than 60%</a> of Greeks have said no to the bailout terms set by the country’s international creditors. Following this resounding rejection, prime minister Alexis Tsipras now has a clear mandate from the Greek people to renegotiate the terms and conditions of the agreement with the IMF and its EU partners. </p>
<p>The referendum presented Greek citizens with a dilemma. On one hand, voting Yes would mean conceding to further austerity and siding with precisely those political forces that are perceived responsible for Greece’s predicament. On the other, voting No would bring a new period of uncertainty for the country. </p>
<p>The precise wording of the referendum question contributed to this quandary. The government was very careful not to ask voters if they wanted to stay in the eurozone or not, which is – after all – what is at stake. Rather, Tsipras decided to ask a very specific question on a technical issue that he himself had rejected. </p>
<p>This was a political move. Given that public opinion is generally supportive of eurozone membership, it was much more likely that Greeks would vote to reject austerity than oppose eurozone membership. This essentially allowed the government to use this referendum as a popular vote of confidence for its negotiation policy with Greece’s creditors. </p>
<h2>Unanswered questions</h2>
<p>The economic consequences of this result could be devastating. Greece’s domestic economic situation will be weakened and further economic uncertainty will follow. It is not clear when banks will re-open and whether the country will be able to address its liquidity problems. Deputy finance minister Nadia Valavani has <a href="http://www.kathimerini.gr/822329/article/epikairothta/politikh/valavanh-oxi-analhyeis-metrhtwn-apo-tis-8yrides">already warned</a> that Greeks will not be permitted to withdraw cash from safety deposit boxes for the time being.</p>
<p>It is also unclear how the government will bring investment and growth to the country. Any foreign business is unlikely to invest in a country which could nationalise their assets at any moment. </p>
<p>And, crucially, we still don’t know how this result will affect Greece’s negotiating position with the EU partners and the IMF. It may well weaken rather than strengthen it, as many voters may have hoped.</p>
<p>The Greek government has lost credibility abroad. Its EU partners and the IMF no longer trust it and the view from abroad has been that this is nothing short of a vote on Greece’s eurozone membership. In fact some key players, such as European Parliament president Martin Schulz, have even argued that if Greece votes no, it should start looking at introducing a <a href="http://www.reuters.com/article/2015/07/05/us-eurozone-greece-schulz-idUSKCN0PF06O20150705">new currency</a>.</p>
<h2>The morning after</h2>
<p>As his country went to the polls, Tsipras said: “Today we celebrate democracy,” and proclaimed that the will of the people <a href="http://www.kathimerini.gr/822298/article/epikairothta/politikh/a-tsipras-kaneis-den-mporei-na-agnohsei-thn-voylhsh-toy-laoy">should not be ignored</a>.</p>
<p>But the referendum has had the opposite effect. It has further weakened Greek democracy and undermined Greece’s negotiation position with its creditors. What’s more, its has solidified divisions in Greek society. In a country with a history of civil war and dictatorship, this polarisation may lead to a further rise of the extremes. </p>
<p>The day after the referendum is a very important moment. The people have spoken and the government will need to finally clarify its vision for the future. It will need to explain if it is resolved to addressing Greece’s crisis within the eurozone by cooperating with its partners or if it wants to create a utopian socialist state in Europe. This result marks a new period of uncertainty, not only for Greece but for Europe – and potentially for the world economy as a whole.</p><img src="https://counter.theconversation.com/content/44289/count.gif" alt="The Conversation" width="1" height="1" />
Greece has voted resoundingly against the bailout terms set by the IMF in a historic referendum.Sofia Vasilopoulou, Lecturer, Department of Politics, University of YorkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/442592015-07-05T08:59:21Z2015-07-05T08:59:21ZIf you think the eurozone will be safe from Grexit contagion, think again<figure><img src="https://images.theconversation.com/files/87352/original/image-20150703-20493-t2b4sa.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Grexit puts everyone at risk</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&autocomplete_id=&search_tracking_id=078hje0CELX3fTEgCY0uDQ&searchterm=greek%20crisis&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=292175045">Martin Capek</a></span></figcaption></figure><p>For Greece’s government, the July 5 referendum that <a href="http://news.sky.com/story/1513740/greece-no-campaigners-celebrate-victory">has just</a> rejected the EU’s bailout package was one step in a long negotiation process. Its ultimate objective is to get Greece’s creditors to agree a <a href="http://uk.businessinsider.com/greece-2-year-bailout-demands-and-loan-application-2015-6">bailout package</a> that provides partial relief from debt repayments, together with a substantial debt write-down. </p>
<p>For the creditors, on the other hand, it was a straightforward in/out referendum which will determine Greece’s continued membership in the eurozone and even perhaps the EU. If Greece voted Yes, these creditors were effectively demanding a <a href="http://www.nytimes.com/2015/06/30/world/europe/greek-premiers-referendum-call-tests-his-power-and-conviction.html?_r=0">change of government</a>.</p>
<p>Now those creditors have to be content with the <a href="http://money.cnn.com/2015/07/06/news/economy/greece-yanis-varoufakis-resigns/">resignation</a> of finance minister Yanis Varoufakis. The rest of the government remains.</p>
<p>Given the pivotal nature of the referendum, the brinkmanship on display was both striking and seemingly foolhardy – possibly borne of a disagreement about what will happen if an agreement can’t be reached. It further complicated what is already a high-stakes and seemingly endless negotiation, which now has to contend with a Greek No victory as well. </p>
<h2>Making sense of Greece</h2>
<p>After it <a href="will%20happen%20if%20negotiations%20break%20down,%20and%20therefore%20what%20the%20true%20worth%20of%20the%20%22outside%20option%22%20really%20is.">won the</a> last Greek general election in January, Syriza of course <a href="http://www.todayszaman.com/anasayfa_syriza-wins-greek-election-promises-austerity-is-over_370820.html">publicly committed</a> to reject any bailout package involving further austerity – though it has since <a href="http://www.bloomberg.com/news/articles/2015-07-02/defiant-varoufakis-says-he-ll-quit-if-greeks-endorse-austerity">shown willing</a> to compromise this ideal. </p>
<p>The Greek argument is that austerity is self-defeating, and without a substantial debt restructuring, the prospect of further harm to the country in both the short-run and the medium term outweighs any potential gains from continued eurozone membership. The <a href="http://www.theguardian.com/business/2015/jul/02/imf-greece-needs-extra-50bn-eurosanalysis">IMF’s intervention</a> on July 2 seemingly supports this view, proposing relief from debt repayments and a substantial debt write-down in return for a credible plan for economic reforms. Yet while Greek prime minister Alexis Tsipras <a href="http://www.theguardian.com/business/2015/jul/02/imf-greece-needs-extra-50bn-euros">welcomed</a> this intervention, not all the economic reforms the IMF has in mind might be palatable to Syriza. </p>
<p>The contrary view, of course, is that the current Syriza government in Greece is a recalcitrant debtor with no intention of either paying back its debts or implementing a reform package that stimulates private-sector economic activity. The Greek government has steered clear of conflating a No vote and a strategic default, though, clearly wording the referendum to avoid this interpretation. It seeks a decision from the Greek people on the latest bailout proposal and not euro membership. And the proposal <a href="http://g8fip1kplyr33r3krz5b97d1.wpengine.netdna-cdn.com/wp-content/uploads/2015/06/ilovepdf_merged-2.pdf">it tabled</a> to the <a href="http://www.esm.europa.eu">European Stability Mechanism</a> and <a href="http://www.consilium.europa.eu/en/council-eu/eurogroup/">Eurogroup</a> on June 29 for a new third bailout was an attempt to distance itself from the vitiated wrangling that has characterised the failed talks so far.</p>
<h2>Eurozone brinkmanship</h2>
<p>Less has been written about the brinkmanship on the part of the eurozone creditors. It signals a belief that the impact of Greece leaving the euro could be contained to its borders and not spread to other eurozone countries labouring under enormous debts. This betrays a false sense of control over the unintended consequences and deep long-term uncertainty that a Grexit would cause. </p>
<p>A different view is that a Grexit would push the eurozone project to the brink. The eurozone constitutes an irrevocable commitment to a monetary union, essentially a fixed-exchange-rate arrangement backed by a central bank and some form of banking union. As we learned from the <a href="https://history.state.gov/milestones/1969-1976/nixon-shock">collapse of</a> the Bretton-Woods system in the 1970s, fixed-exchange-rate regimes between structurally dissimilar economies eventually break down. A common central bank and a banking union might mitigate some of the risks, but without some arrangement to pool the fiscal policies of the different countries involved, it is prone to collapse once the irrevocable commitment to sustain the monetary union is in doubt. Allowing Greece to leave would put the eurozone in that category. </p>
<p>The market would consequently demand a risk premium in relation to the assets of other struggling countries in the zone. It would want to see a pan-European framework of laws in place to mitigate the risks of another country leaving, which doesn’t exist at present. The <a href="http://europa.eu/rapid/press-release_MEMO-13-1140_en.htm?locale=en">EU banking resolution framework</a> is still nascent and untested, and Grexit could expose flaws at a particularly turbulent time when its inevitable bank insolvencies would have to be handled in an orderly fashion. </p>
<p>Equally uncertain are the <a href="http://www.inhouselawyer.co.uk/index.php/contract/7202-choice-of-law-when-none-is-chosen-the-rome-i-regulation">rules governing</a> what happens to commercial contracts between Greek parties and those from elsewhere in the EU, and whether they would be redenominated from euros into new drachma (potentially causing catastrophic losses for non-Greeks if and when that drachma plummeted). This would make the outcomes from any litigation particularly uncertain, which would create further market uncertainty and instability. Indeed regardless of the outcome on Sunday, there is <a href="http://www.allenovery.com/archive/Documents/Legacy/65610.pdf">no evidence</a> that the uncertainty will be diminished in this respect. </p>
<p>Further adding to the uncertainty is the fact that the creditors have <a href="http://www.theguardian.com/business/2015/jul/01/greece-crisis-berlin-blasts-tsipras-scapegoats-germany">not yet said</a> whether the bailout negotiations would continue in the event of a Grexit; and the partisan role of the European Central Bank in <a href="http://www.theguardian.com/business/live/2015/jun/28/greek-crisis-ecb-emergency-liquidity-referendum-bailout-live">denying the</a> Greek banks the emergency liquidity to which they are entitled as members of the euro. </p>
<p>There was an unequivocal monetary-policy case for continuing the funding until after the referendum (it stopped on Sunday June 28), as well as renegotiating the austerity programme on which the bailouts depend. The European Central Bank <a href="https://www.ecb.europa.eu/press/pr/date/2015/html/pr150628.en.html">provided no</a> monetary rationale for its decision – yet the European Court of Justice <a href="http://curia.europa.eu/jcms/upload/docs/application/pdf/2015-01/cp150002en.pdf">has ruled</a> that the bank’s mandate requires it to ensure the channels for monetary policy remain unblocked. The bank’s evident sensitivity to political headwinds is a problem for the future stability of the eurozone. </p>
<p>The ways in which these scenarios do or don’t play out after the referendum are moot to some extent. Despite the No vote in Greece, a solution will be found in the short term. But to make a difference in the longer term, there will have to be further and deeper economic convergence funded by a 21st-century version of the <a href="http://marshallfoundation.org/marshall/the-marshall-plan/">Marshall Plan</a> for the eurozone’s “south”, together with a new phase of political integration. Since Europe’s citizens want to bring the continent closer together, there is no other option.</p><img src="https://counter.theconversation.com/content/44259/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sayantan receives funding from ESRC</span></em></p><p class="fine-print"><em><span>Dania Thomas does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>European leaders have consistently claimed that their anti-contagion measures would protect the rest of the eurozone from a Greek exit. This looks like pure propaganda.Sayantan Ghosal, Professor of Economics, University of GlasgowDania Thomas, Lecturer in Business Law, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/441042015-07-03T05:28:26Z2015-07-03T05:28:26ZGreece, honour and the ancient ties of wergeld<p>On the surface, it seems the <a href="https://theconversation.com/uk/topics/greece">Greek crisis</a> is all about money. The Greek government has defaulted on a €1.6bn loan repayment to the IMF and is seeking a new bailout programme. Meanwhile, the Greek people are to take part in a referendum that is being billed as a choice between the euro and the drachma.</p>
<p>In fact this crisis is not about money. Greece’s creditors are well aware that Greece cannot repay or even service its debt. They are happy to keep finding ways to refinance it, so long as Greece agrees to punitive austerity policies. They aim for punishment, not repayment. They care about honour and vengeance, not money. </p>
<p>Modern Europe is witnessing an enactment of an ancient law known as <a href="http://www.britannica.com/topic/wergild">wergeld</a>. Greece is expected to continue paying, not until its financial debt has been cleared, but rather until its creditors think it has suffered enough.</p>
<h2>The endless debt</h2>
<p>When a person or a firm faces bankruptcy, their debts can be written down to their ability to pay. A person’s total ability to pay can be estimated on the basis of expected lifetime earnings. Firms have indefinite lifespans, but at least their rate of repayment can be estimated on the basis of their expected profits.</p>
<p>Sovereign debt is completely different. A sovereign, <a href="http://oregonstate.edu/instruct/phl302/texts/hobbes/leviathan-d.html">as Hobbes said</a>, is immortal in the intention of them that make it. And in principle it can set its own level of income by choosing how much to tax its citizens and how much to spend on them. There must be a limit to what sovereigns can extract from their citizens, but who knows where it is? A sovereign’s ability to pay is an unknown rate of income multiplied over an infinite lifespan. This is why Greece can, in principle, stay in the condition of a debtor forever.</p>
<p>Nor is there any real limitation on the creditors’ side. It is true that some creditor or other must keep lending Greece money to service its debt. But once the European Central Bank got involved the amount of potentially available credit became infinite.</p>
<p>So far the austerity policies imposed on Greece by its creditors have made it less, not more, able to pay. From 2006 the debt-to-GDP ratio has risen from <a href="http://www.tradingeconomics.com/greece/government-debt-to-gdp">100% to nearly 180%</a>. But what does it matter? The sovereign debtor has an infinite lifespan in which to recover the loss.</p>
<p>There is 60% youth unemployment now, but three generations in the future people might be working again. Greeks may be dying early due to malnutrition and curable disease, but others are being born who can take over the work of repayment. The luxury of time is all the luxury the creditor needs.</p>
<h2>Paying wergeld</h2>
<p>The burning question isn’t whether Greece can be kept in this condition indefinitely; it is why anybody should want it to be. The creditors are never made whole, so what is the point? The answer is not to be found in economic reasoning.</p>
<p>Such reasoning tells us only that a creditor should get as much as possible while there is still time. But that is not what is going on here, where there is always still time and the creditors are making new loans faster than they recover old ones. Sovereign debt is an entirely different species of debt to that whose workings are governed by economic reasoning.</p>
<p>The Greek debt is instead what anthropologists know as <a href="http://www.britannica.com/topic/wergild">wergeld</a>. This is a type of debt found in a variety of societies in different periods. It is typically owed when the member of one tribe kills or injures the member of another.</p>
<p>Some theorists interpret wergeld as the price one pays for the wrong. Others, recognising that no amount of money can right a past wrong, see it as something else: a sacrificial act to show contrition and supplication. <a href="http://www.editionsladecouverte.fr/catalogue/index-La_dette_de_vie-9782707155399.html">Philippe Rospabé</a>, for instance, claims that wergeld is paid in order to suspend vengeance.</p>
<p>The debtors pay to show how sorry they are, to harm themselves through deprivation, and thus to assure those they have wronged that there is no need to take vengeance. The word “pay” itself comes from “payer” - to pacify.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=510&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=510&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86868/original/image-20150630-5836-1jg8c3t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=510&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A pre-eurozone court. It was all so simple then.</span>
</figcaption>
</figure>
<p>So it is with Greece. The refrain of those who support the austerity measures is that the transgressions of past Greek governments should not be forgotten. This is very revealing. It explains why the creditors don’t care that they aren’t getting their money back – and why in fact they are lending ever more. For them it is not a matter of money. It is a matter of honour.</p>
<p>The Greeks lied about their financial situation, and for this they must be punished. They must harm themselves to satisfy those they have dishonoured.</p>
<p>We might see the upcoming referendum as a chance for the Greeks to decide whether their penance is done. But it isn’t up to them. Even leaving Europe will not take away the power of their creditors to exact vengeance. It is the creditors who must decide how many homeless pensioners and starving children it takes to restore honour to someone who was once told a lie. It is they who must draw the line between honour and cruelty.</p><img src="https://counter.theconversation.com/content/44104/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alexander Douglas does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It might seem like Greece and Europe are arguing about money, but it’s really all about vengeance.Alexander Douglas, Lecturer in History of Philosophy / Philosophy of Economics, Heythrop College, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/440222015-07-02T09:14:38Z2015-07-02T09:14:38ZGreece: when is it time to forgive debt?<figure><img src="https://images.theconversation.com/files/86899/original/image-20150630-5867-x4snxq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The cry from the streets.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/66944824@N05/17140969184/in/photolist-s7FWXs-br1nAB-fuPj3G-bT45sM-aE1rgE-djgLKr-snZkAX-snSaTf-rr2ozS-djgJQQ-8LkBoN-8LhxHt-8LkBk7-br1nhx-gFhuQT-cdh7AA-aE1rfj-brpp6t-brppgk-brppqT-br1mE6-brpoHt-gMWxbc-7YRzxN-bwxgQX-aDioax-rcDn5h-rcDfaW-qVhjRz-rcz8GH-qfHWCU-qfWfDZ-qV9jQN-aDinbt-edM9X-bwxhWe-bwxiL6-bwxjG4-a6QfnB-qV9qKJ-rczMk8-rcD8e1-aQ8KsR-bory9F-c1GbBh-aC5Xs5-aC5XqQ-aC5Xpj-aWbKSM-c1GiW9">Denis Bocquet</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Greek citizens preparing to vote in a referendum have been implored by their coalition government to reject a deal with the country’s creditors which, in actual fact, might have worked to keep the country afloat and on the road to some form of recovery. <a href="http://europa.eu/rapid/press-release_IP-15-5270_en.htm">The offer that was on the table</a> did miss out on something crucial, however. And it’s something which has become an established part of the narrative around the management of indebted nations: debt relief. </p>
<p>Indeed, the Greek prime minister, Alexis Tsipras, <a href="http://www.ft.com/fastft/352711">proposed a bailout deal on Tuesday that explicitly asked for it</a>. With his country’s previous bailout now expired, a new one remains to be negotiated.</p>
<p>So, when should forgiveness start to play its part – and should it even have an automatic part to play? The state of Greece’s economy is such that many think it is time to tear up its membership of the eurozone. The Greek people have had a terrible time since the start of the financial crisis. Following two protracted bailouts in 2010 and 2012, the country has suffered a series of recessions and performed terribly in key economic indicators – from GDP to employment and real wages. And even though the quantity of public debt has been broadly stable since 2012 it has become more difficult to fund from the base of a shrinking economy. </p>
<h2>Deal or no deal</h2>
<p>Let us be clear though. The alternative of regaining domestic sovereignty over economic policy would not necessarily deliver salvation. Flying solo away from the eurozone would require a credible programme that would be carried out by those who understand economic forces and have the courage to implement unpopular reforms. This, nearly everyone agrees, will still be necessary, in or out of the euro, because the basic problem in Greece <a href="https://www.imf.org/external/pubs/ft/scr/2013/cr13154.pdf">is one of a lack of productive capacity</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=290&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=290&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=290&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=364&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=364&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86900/original/image-20150630-5832-kiz8gk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=364&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Syriza flags fly at a rally in London.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/90552021@N02/15931669973/in/photolist-s9iZcn-qgBK4s-rdtTN4-qW3FG3-rdwVDo-qgPYr4-rbkkEu-qgQ1m6-rdCGFR-rdCJ7M-qW4T39-rdCLjx-rdx2DE-qgBS8Y-qgQ6YZ-qWcT66-rbksJj-rdx7SW-6sS8bX">Ben Folley</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Yet Greece’s political and economic institutions seem to have exhausted their ability to deal with the country’s mess. We have ended up with a ragtag coalition led by the anti-establishment Syriza party, which was elected in January specifically to improve the terms of Greece’s deal with its creditors. Amazingly, with a workable deal on the table from its creditors, Tsipras decided that he did not have a mandate to act without a referendum. His party has called on the Greek people to vote “No” to the deal that was offered, but under pressure from the liquidity squeeze that resulted from rejecting the bailout is <a href="http://www.ft.com/cms/s/0/e82e0256-1fcb-11e5-ab0f-6bb9974f25d0.html">reportedly now backing down on its demands</a>.</p>
<p>If Syriza loses the referendum, it cannot credibly hold on to power. If it succeeds in getting popular backing for rejecting the bailout, however, its ability to rejuvenate Greece’s economy is highly questionable. The run on Greek banks that <a href="http://www.bbc.co.uk/news/business-33303540">led to capital controls being introduced</a> reflects the lack of confidence Greeks have in their own government’s economic policy. Clearly, they’d rather hold onto their money in euro notes rather than have deposits in Greek banks. The Greek banks are closed for a week in order to stem the tide of withdrawals.</p>
<p>The basis of the deal to which the referendum is pegged was two-fold: new plans for fiscal and structural reform and a five-month extension of the bailout. The creditors want further cuts to public wage and pension payments, the retirement age raised to 67 by 2022, increases in VAT, corporate taxes and targets for primary fiscal surpluses. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86902/original/image-20150630-5827-1xeenaz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Market forces.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/spyrospapaspyropoulos/9805381556/in/photolist-fWt9jG-aBA6JJ-iscs6r-8wQ5Ns-qJ2cif-jLQY2j-hvXZ5f-94EcJg-pwKRjk-9NdNPm-8wQ4SC-jLR3UW-8kePFz-oSoUWW-nesCdY-61nXbN-nTkJFp-ac9eNB-61iLmi-s69VdY-4UyzTU-9WSnkL-5guPWQ-8Utdxm-qEuxPb-bKYgnR-iTUUgx-aJBart-8YHL9h-GturJ-gSan63-8TVUcK-61nZjU-igxgV-efUWyv-61o1yu-cKZ7N-asvVVk-2JKkfr-eWQGq-8HYbA-aca82S-KBG3j-93JfkH-4QwbNX-pi8diT-a6US65-4XXt94-86i79P-efULCz">Spyros Papaspyropoulos</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>These are reforms that would continue to bring Greece in line with the economic strategies pursued by other euro area members. In return, the Greeks simply get the right to continue to stay broadly on track with their current programme and the final set of disbursements would be released from creditors and ECB liquidity support would be maintained. </p>
<h2>Need for relief?</h2>
<p>It should be noted that it is quite possible to start a sustained path of fiscal adjustment from levels comparable to those currently found in Greece without debt relief. The UK has engineered such a feat three times in the past two centuries after the Napoleonic wars, and the world wars. But the tradition in many countries over many centuries (<a href="http://www.nber.org/papers/w13882">as outlined in Reinhart and Rogoff</a>) has typically involved debt relief following default. In the tabled Greek deal, there was no talk of debt relief.</p>
<p>But without it, even if Greece manages to achieve 5% growth in nominal GDP and interest rates on debt were low – say 2% – it would still take nearly 20 years to get Greece’s debt to GDP ratio under 100%. And, <a href="http://www.theguardian.com/business/2015/jun/30/greek-debt-troika-analysis-says-significant-concessions-still-needed">leaked documents</a> from its creditors estimate that Greece would still be have unsustainable debt levels of 118% of GDP in 2030, even if it signs up to all tax and spending reforms demanded.</p>
<p>The question facing Greece and the eurozone is whether further debt relief is made an explicit part of a deal right now, or becomes a carrot proffered by creditors to keep Greece in the eurozone; or demanded by Syriza. It’s almost impossible to imagine a scenario in which debt relief fails to play a role in the Greek catharsis.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86903/original/image-20150630-5864-wrpdtf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Union dues. Paying up to stay in.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/micora/438924497/in/photolist-EMAXK-cy1MN3-98Vh2w-4DRfcu-bz6aQ3-4SVDTx-jZtHHK-5f74Fx-dSZe91-2MkB7G-9VzqVZ-9VzRWs-dSK3tm-cnchKE-nDCTHQ-d9RDu-9VDuLj-LAfJd-a5id8U-5tFwKC-jkhgb-8MpwbA-33fGbC-d8KpPy-dTUAhR-atCSZ7-9VzTJL-9ZA9J6-4bF9WJ-dz9jCy-2Mkzrw-9VCvQE-878ATe-9VCugY-k3pC62-9Vx3re-dRsLkh-dvcvj7-9VzUw7-fb7gRo-37oBSD-6NVsFb-2EzF-5A5cZo-3eGDt-5A5dkd-2MuK7Q-9VCh15-qBjgi-5TresR">Javier Micora</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>A single currency can work if economic shocks are synchronised across the single currency area or there is an adequate degree of risk sharing for idiosyncratic shocks. There will always be a problem if one country is persistently in recession, as no one wants the sharing of risk to turn into a permanent sequence of subsidies, which leads to the kind of debt problem that Greece and others in the eurozone face. </p>
<p>But equally in a currency area, the surplus countries might have the right to try and enforce fiscal and financial rules, but they also have a responsibility to help those stuck with deficits. This help might obviously involve more forceful attempts to stimulate aggregate demand in the currency area as a whole, but should also involve constructing a mechanism to forgive debt from time to time. Without such a mechanism we will be consigned to a seemingly endless stream of mostly fruitless negotiations. Debt forgiveness and economic reform is a marriage made in Elysium.</p><img src="https://counter.theconversation.com/content/44022/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jagjit Chadha does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Debt relief should not be a divisive bargaining tool. Better that it is a formal part of a structured approach to risks in a currency union.Jagjit Chadha, Professor of Economics, University of KentLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/441512015-07-02T05:13:47Z2015-07-02T05:13:47ZEurope is heading towards constitutional crisis, with or without Greece<p>As Greek Prime Minister Alexis Tsipras stands off against the so-called Troika, questions abound about the future of his country.</p>
<p>But there should also be pressing questions about the future of the European Union. The shaky legal foundations of the EU have been laid bare by this crisis.</p>
<p>Over the past few months, Greek officials and representatives of the Troika have indulged in a succession of tit-for-tat exchanges masquerading as negotiations.</p>
<p>These are only the latest proof of the failure of the EU’s political and legal structures to effectively mediate conflicts and resolve differences between members.</p>
<p>The negotiation of a new <a href="http://europa.eu/rapid/press-release_DOC-12-2_en.htm">Fiscal Compact</a>, the creation of <a href="http://www.esm.europa.eu/">multiple bailout funds</a>, and the (<a href="https://theconversation.com/as-its-power-grows-is-the-ecb-overstepping-its-mandate-36997">potentially illegal</a>) expansion of the European Central Bank’s (ECB) mandate all failed to solve the problems that sparked the crisis in the first place.</p>
<p>Now, five years after Greece’s first bailout, solidarity and trust between citizens, governments and EU institutions are in desperately short supply.</p>
<p>All of this indicates that the euro crisis is a crisis of EU constitutionalism. The union has failed to strike the right balance between democracy and technocratic governance. It has failed to balance the needs of citizens and states in a highly diverse supranational polity.</p>
<p>German academic <a href="http://ukcatalogue.oup.com/product/9780198295464.do">Fritz Scharpf</a> famously asked 16 years ago whether EU governance could be both effective and democratic. Right now, it appears to be neither.</p>
<h2>Democracy down the drain</h2>
<p>Developments in Greece illustrate the EU’s shortcomings. On June 28, the Greek government announced the imposition of capital controls, including bank closures and a 60 euro-a-day limit on withdrawals from cash machines. </p>
<p>This followed the <a href="https://www.ecb.europa.eu/press/pr/date/2015/html/pr150628.en.html">ECB’s decision</a> earlier in the day to maintain Greece’s emergency liquidity assistance at current levels, when much more would have been needed to resupply Greek banks.</p>
<p>From a democratic perspective, it is deeply troubling that such an important political decision was left to the central bank, which is meant to be above politics. The ECB’s assumption of a leadership role in the crisis is equally concerning from a legal perspective, given its narrow mandate.</p>
<p>The decision by Tsipras to call a referendum is also interesting. A cynical reading would be that the prime minister is trying to shift responsibility for his failure to secure acceptable bailout terms onto the Greek electorate. Indeed, former prime minister George Papandreou <a href="http://www.bbc.co.uk/news/world-europe-15526719">tried a similar tactic</a> with a previous bailout in 2011, but was forced to call off his referendum, under pressure from the French and German governments.</p>
<p>It looks as though Tsipras’ referendum <a href="http://www.independent.co.uk/news/business/news/greece-crisis-tsipras-vows-referendum-will-go-ahead-on-sunday-10358506.html">will go ahead</a>, and he is calling for his country to vote against the EU’s demands. But this appeal came just hours after <a href="http://www.bbc.co.uk/news/world-europe-33345219">a letter</a> was published in which he said he would concede to most of the Troika’s requests.</p>
<p>The Greek government has been arguing that allowing the Greek people to decide is the proper, democratic approach but this claim is questionable. Referendums are a blunt tool because they take a range of complex questions and reduce them to a simple “yes” or “no” answer. Holding the referendum barely a week after it was announced doesn’t allow much time for people to properly consider the issues, either.</p>
<p>Moreover, if democracy really is the key concern, then one may ask why the preferences of citizens in the other euro states aren’t being taken into account, when the bailout involves their money too.</p>
<h2>Changing the leopard’s spots</h2>
<p>Despite everything, the Greek government still wants to stay in the euro. Finance minister Yanis Varoufakis has even threatened to take the EU institutions to court to block a Grexit, since it is not permitted by the EU treaties. Given that the euro crisis has been a <a href="http://icon.oxfordjournals.org/content/12/3/545.abstract">five-year-long unravelling of the EU’s legal order</a>, this threat is almost comical.</p>
<p>Whether or not Greece holds a referendum (and regardless of the result), the EU will still be in crisis. Solving it will take major legal reform – including an overhaul of the ECB’s powers and formal recognition of the Eurogroup of finance ministers, which is one of the eurozone’s most important institutions, but which remains an informal body (as Varoufakis <a href="http://uk.businessinsider.com/yanis-varoufakis-eurogroup-statement-june-27-2015-6?r=US">discovered</a>, much to his annoyance, when they had a meeting without him). </p>
<p>Admittedly, all this is unlikely to occur. The lack of trust within the EU, its inability to deal with other pressing concerns such as the <a href="https://theconversation.com/uk/topics/migrant-crisis">migrant crisis</a> and the conflict in Ukraine and the surge in populism in many member states will all make it harder for a rational discussion of the EU’s future to take place.</p><img src="https://counter.theconversation.com/content/44151/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicole Scicluna does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Five years of turmoil shows the union rests on shaky legal foundations.Nicole Scicluna, Lecturer in Politics and International Studies, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/440952015-06-30T14:09:16Z2015-06-30T14:09:16ZGreece in crisis: even if Grexit is averted, the eurozone needs a fundamental rethink<p>We are approaching the end game in the conflict between Greece and its creditors.
How likely is it that Greece will leave the euro? It is much more likely now than ever before. Brinkmanship is a national sport in the EU, but we are now at the limits of what is negotiable. </p>
<p>The banking system has basically been suspended until the referendum on July 5 <a href="http://www.ft.com/cms/s/0/49775bac-1d83-11e5-ab0f-6bb9974f25d0.html#slide0">following the</a> introduction of capital controls on Monday June 29, caused by the European Central Bank’s <a href="http://www.bloomberg.com/news/articles/2015-06-28/ecb-freezes-greek-emergency-bank-aid-as-referendum-raises-risk">freeze on</a> emergency liquidity assistance at current levels. Everyone knows that Greece is insolvent if there is a No vote. I cannot see the eurozone countries renegotiating the bailout deal in the event of that happening, so a No vote would probably be the beginning of the end. </p>
<p>If there is a Yes vote to endorse the bailout deal, it’s clear from the <a href="http://www.marketwatch.com/story/a-yes-vote-in-the-greek-referendum-is-a-no-vote-for-syriza-2015-06-29">most recent statements</a> that there will be a political crisis in Greece: the ruling government will not wish to impose further austerity, which it regards as unacceptable, and which <a href="http://www.project-syndicate.org/commentary/greece-referendum-troika-eurozone-by-joseph-e--stiglitz-2015-06">some economists see</a> as having worsened the plight of the Greek economy. (Greece’s GDP has <a href="http://www.tradingeconomics.com/greece/gdp">shrunk by</a> 25% between 2008 and 2015.) This could then lead to political stalemate in Greece which might mean the crisis is merely postponed.</p>
<h2>Where No leads</h2>
<p>If Grexit happens, it will not be costless. A return to a (massively devalued) drachma will not engender competitiveness overnight. The level of competitiveness measured by Greece’s GDP deflator relative to the EU <a href="http://www.tradingeconomics.com/greece/inflation-gdp-deflator-annual-percent-wb-data.html">has already</a> dropped by 8%-9% since 2014: a real devaluation. But it would need more than this, and it would take a long time to feed through to net exports given Greece’s loss of competitiveness in the decade before.</p>
<p>As <a href="http://www.ibtimes.com/capital-flight-cyprus-131-billion-bailout-euro-zones-latest-experiment-economic-engineering-1131869">we saw in Cyprus</a> in 2012-13, there will be massive capital flight. There already <a href="http://www.bloomberg.com/news/videos/2015-06-29/capital-flight-from-greece-deepens">has been</a> capital flight from Greece, and capital controls can never be 100% effective.</p>
<p>Economic recovery will also be difficult in the face of an insolvent banking sector, with a credit crunch that will take time to unwind as the new currency is introduced. Although Greece will be able to renegotiate its debt following a Grexit, its bargaining position in this area depends crucially on its ability to deliver a budget surplus, as it will be effectively shut out of any new borrowing. The question is: how robust is that forecast budget surplus following a credit crunch?</p>
<p>There would be substantial costs for the eurozone too. The risk of contagion would require eurozone ministers and the ECB to deploy all the powers at their disposal to prevent the bond yields in southern Europe from rising relative to German bond yields and prompting a further unravelling of the eurozone. There <a href="https://theconversation.com/greece-why-there-can-be-no-winners-in-the-grexit-game-43599">would be</a> substantial losses for eurozone governments which financed the Greek bailouts, but also for the national central banks due to the creation of additional monetary base by the ECB. The losses will be proportionate to the size of each country in the ECB system, ranging from just under 26% for Germany and just under 13% for Spain. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/86839/original/image-20150630-5864-v8bmzn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/86839/original/image-20150630-5864-v8bmzn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/86839/original/image-20150630-5864-v8bmzn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86839/original/image-20150630-5864-v8bmzn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86839/original/image-20150630-5864-v8bmzn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86839/original/image-20150630-5864-v8bmzn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86839/original/image-20150630-5864-v8bmzn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86839/original/image-20150630-5864-v8bmzn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">No supporters demonstrating in Athens on June 29.</span>
<span class="attribution"><span class="source">EPA</span></span>
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</figure>
<p>The irony is that, of course, Grexit would compel the creditor countries to renegotiate the unsustainable part of the Greek debt, and reach a more sustainable debt position in an attempt to recover some of that debt. One has to ask why that wasn’t the starting point of the negotiation between the parties during the current crisis, which instead has focused on short-term targets for Greece’s budget surplus. </p>
<p>The reason is that, undoubtedly, restructuring the debt <a href="http://www.voxeu.org/article/grexit-staggering-cost-central-bank-dependence">would have had</a> implications for wider eurozone politics. But that ignores the fact that the crisis has been caused by the fundamental design flaws of the eurozone in the first place. </p>
<p>The bigger question is whether a Grexit would fundamentally change the way in which the eurozone pools its sovereignty on fiscal matters, or whether Grexit would be merely the prelude to a further break-up. I think it is unlikely that anything will change in the eurozone’s architecture, meaning that it will create further problems, particularly if any larger economy experiences similar difficulties to Greece in future.</p><img src="https://counter.theconversation.com/content/44095/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anton Muscatelli does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Would the eurozone redesign its flawed system in the wake of a Grexit?Anton Muscatelli, Principal and Vice Chancellor, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/436542015-06-22T13:35:04Z2015-06-22T13:35:04ZTsipras’s choice: trigger a Grexit or break up Syriza<p>The Greek government has submitted <a href="http://www.bbc.co.uk/news/world-europe-33220220">11th-hour concessions</a> to its creditors ahead of an emergency summit of EU leaders to negotiate a deal that will save the country from defaulting on the €1.5 billion IMF loan. Following five months of deadlocked talks, it has become clear that the Syriza government cannot achieve its pre-electoral pledges. </p>
<p>If no agreement is reached, Greece will default on its loan and a Grexit will be <a href="https://theconversation.com/how-greeces-liquidity-problem-could-cause-an-unplanned-grexit-41691">incredibly likely</a>. But conceding to the demands for spending cuts and welfare reforms that will form part of any deal with its creditors is likely to cause a political rift at home for Syriza leader and Greek prime minister, Alexis Tsipras. It would seem then that the government’s dilemma is a break with Europe or a break-up of the party. </p>
<h2>Break in the ranks</h2>
<p>The gap between the Greek government and its creditors has drawn much closer since negotiations began in January. Indeed, if Greece’s <a href="http://www.theguardian.com/world/2015/jun/22/greek-debt-crisis-tsipras-offer-is-welcomed-as-good-basis-for-progress">latest proposal</a> is accepted, the resulting agreement will be a long way off the promises on which Syriza was elected five months ago. It guarantees the running of primary budget surpluses – albeit significantly smaller than before – and continues the policy of fiscal austerity.</p>
<p>This agreement will be unacceptable to Syriza’s <a href="http://www.bloomberg.com/news/articles/2015-06-19/compromise-is-a-dirty-word-for-tsipras-backers-in-aid-standoff">hardcore</a>, who consider themselves to be the party’s conscience. For them any agreement, which recognises the legality of debt and perpetuates austerity, is a clear betrayal of the party’s principles.</p>
<p>Moreover, for them it would be a strategic mistake to miss the present opportunity, while they have a considerable amount of popular support and anti-European sentiment is unusually high, in order to break with Europe and leave the euro. </p>
<h2>Consequences of a Syriza split</h2>
<p>An agreement that is acceptable to its creditors will has a strong chance of leading to the breakup of the Syriza Party. The government will lose its parliamentary majority as a result and will have two options. Either call elections or take on a new partner (most <a href="http://uk.reuters.com/article/2015/01/09/uk-greece-election-river-idUKKBN0KI1GP20150109">likely the To Potami party</a>). Collaboration with a new partner is unlikely to be smooth and both sides will act with one eye on a future election. </p>
<p>Elections are therefore inevitable and Syriza will have every interest to hold them before the collection of income and property taxes, which will begin in earnest over the summer.</p>
<p>In the run-up to these elections, the opposition will no doubt argue that the agreement signed by Syriza is no better than the previous one and that the long negotiation in order to reach it only managed to seriously weaken the economy, which <a href="https://theconversation.com/a-syriza-election-win-would-be-a-serious-setback-for-greece-35576">had begun to recover in 2014</a>. Nevertheless, it is very doubtful whether it will be able to stop Syriza from being the party with the highest number of votes. So Syriza could again be in government, albeit without its revolutionary wing. The road will then be open for its transformation into a European-style social democratic party, which will be judged mainly on its success in improving the economy’s competitiveness and growth rate.</p>
<h2>If no agreement is reached</h2>
<p>Let us now briefly consider the possibility that no agreement is reached. This will happen if the government’s dilemma is resolved in favour of preserving party unity. It will mean that the neo-bolshevik wing has gained the upper hand, with the support of the vast state-dependent section of society that oppose the structural reforms.</p>
<p>If no agreement is reached, Greece will default on its IMF loan and make Grexit <a href="https://theconversation.com/how-greeces-liquidity-problem-could-cause-an-unplanned-grexit-41691">incredibly likely</a> as a result of the country’s liquidity problem. There should be no doubt that the consequences of this will be catastrophic. </p>
<p>Although there is general agreement that this will be the case in the short-run, there are some commentators who believe that in the longer run regaining control over its monetary policy and exchange rate will enable Greece to escape austerity and restart economic growth. They are wrong. </p>
<p>Without structural reforms that improve the country’s competitiveness and overall productivity, there can be no economic growth. The government that decides on Grexit will do so precisely to avoid making such reforms. It will immediately expand the state and embark on the path of constructing a neo-communist regime that fails to take into account the private sector of the economy. It will run budget deficits that buttress its sources of support, stoke inflation in the absence of productivity growth, and impoverish Greece by continuously devaluing the new currency’s exchange rate.</p>
<p>It is evident that Greece is at a critical juncture and the momentous decision about the road to be taken is largely in the hands of Syriza’s leader who maintains substantial support domestically. His inclination would be to ask for more time, even though this will further depress the economy. Beyond that, Alexis Tsipras’ mind is not easy to read.</p><img src="https://counter.theconversation.com/content/43654/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thanos Skouras does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Whether Greece reaches a new bailout agreement or not, the country is in for a rough ride.Thanos Skouras, Emeritus Professor of Economics, Athens University of Economics and BusinessLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/398562015-04-09T02:50:05Z2015-04-09T02:50:05ZGreece will survive another D-Day – no thanks to Russia<p>Greece will avoid D-Day. That’s D for “Default”. This week, Greek finance minister Yanis Varoufakis met with IMF chief Christine Lagarde, assuring her that Athens would meet its €450 million obligation to the Fund, due on April 9.</p>
<p>Had Greece failed to meet that deadline, it would have been formally in default. But markets scarcely seemed to notice. This week, Greece had no trouble selling over <a href="https://au.news.yahoo.com/world/a/27015808/greece-raises-1-1-billion-euros-sells-all-6-month-t-bills-on-offer/">€1.1 billion in short-term Treasury bills</a> in an auction on April 8. The coupon rate remained under 3%, virtually unchanged from a year ago.</p>
<p>However, it costs Athens significantly more than its Mediterranean partners in Spain and Portugal to roll over old debt into new. Moreover, Greece has now hit the €15 billion ceiling on private-sector borrowing that its Troika conditions allow.</p>
<p>But it doesn’t end there. Greece has a raft of payments due to the IMF, with the largest tranche, €745 million, scheduled for 12 May. The May 1-12 period alone requires the Greek government to repay €950 million to the IMF.</p>
<p>In total, Athens owes the Fund €9.7 billion this year. Under the conditionalities imposed by the Troika (the EU Commission, European Central Bank and IMF), a single loan left in arrears would technically consign Greece to the status of defaulter. No country has ever defaulted on an IMF loan since the Fund was formed following the 1944 Bretton Woods conference.</p>
<p>April’s repayments are covered. But the cash register may be empty in May. This is where Varoufakis’ commitment to repay the Troika loans internally contradict his party’s expenditure commitments to ensure payments to pensioners and public servants. Syriza also went to the election promising not to cut wages or pensions further. No Greek leader has determined how to untie this particular Gordian knot. Former prime minister Samaris chose major expenditure cuts. Conversely, Prime Minister Tsipras and finance minister Varoufakis seek to dismantle New Democracy’s austerity regime; however, in law, Greece is bound by commitments of the former Papandreou government, which gave in to Berlin’s demands for fiscal discipline.</p>
<p>The IMF has estimated Greece would raise $2.2 billion from privatisations in 2015. Conversely, the Greek government argued that if the ECB distributed its 2014 Securities Market Program (SMP) profits, a bond-buying program operated by the central bank, Greece’s $1.9 billion share of SMP revenues would cover most of the shortfall, if the asset sales did not proceed.</p>
<p>In a <a href="http://s.kathimerini.gr/resources/article-files/fakelos-paroysiasewn-eurogroup.pdf">leaked transcript</a> of the Eurogroup meeting of February 11, Varoufakis argued strongly against fire-sale public asset liquidations in order to finance Athens’ debt obligations, due to deflated prices.</p>
<p>In late March, the ECB, controversially, <a href="http://www.wsj.com/articles/ecb-lifts-ceiling-on-greek-emergency-loans-1427306935">forbade Greek banks</a> from assuming more public-sector debt via the purchases of Greek government T-bills (thus preventing Greece’s banking sector from creating new money out of government junk bonds). However, the ECB also raised the limit on the Emergency Liquidity Assistance (ELA) program by €700 million, to ensure continued liquidity within the Greek financial sector. ELA provides the Greek central bank with an essential lending facility to the commercial and retail banking sectors.</p>
<p>Meanwhile, Tsipras wants to implement Syriza’s policy agenda urgently. His Syriza coalition has moved quickly on three fronts to distance itself from the former New Democracy government’s austerity program. First, on the expenditure side, the government is committed to its pre-election program of restoring a number of pension benefits.</p>
<p>Second, in the finance sector, it has removed the chairpersons of the two biggest Greek banks and appointed its political allies.</p>
<p>Third, on the revenue side, Varoufakis’ finance ministry has made sensible reform suggestions in relation to tax audits to combat evasion, outbound capital transfers and VAT collection, all of which have contributed to serious revenue shortfalls.</p>
<p>However, since Syriza’s election early this year, German-Greek relations have soured noticeably, as Berlin remains implacably opposed to a renegotiation of the terms of the Greek bailout. This, in turn, has led Athens to seek suitors elsewhere.</p>
<h2>From Russia, with love</h2>
<p>During the Balkan wars, the disintegrating Yugoslav federation faced international opprobrium and a UN arms embargo. But throughout the 1990s, Athens turned a blind eye to smuggled Russian weapons, as the Greek government, with a telescope to the blind eye, acted as a conduit for arms transfers to President Milosevic’s genocidal regime. The EU’s recognition of the former Yugoslav Republic of Macedonia (FYROM) in 1995 also enraged the Greek government, which blocked FYROM’s plans for EU membership.</p>
<p>More recently, EU insiders have complained that every European defence document winds up in the hands of the Kremlin, courtesy of Athens. Indeed, Greece’s “tilt east” has furrowed enough brows in Washington to bring the big guns in to set Tsipras straight. In March, Obama sent Assistant Secretary for European and Eurasian Affairs, Victoria Nuland, to meet with Greek officials. Yes, the same Victoria Nuland who was recorded saying “<a href="http://www.theguardian.com/world/video/2014/feb/07/eu-us-diplomat-victoria-nuland-phonecall-leaked-video">Eff the EU!</a>” in 2014. </p>
<p>Doing deals with Russia always comes with strings attached. In 2013, the government of Cyprus <a href="https://theconversation.com/cyprus-avoids-a-bad-haircut-but-pays-a-price-for-shady-finance-12932">creamed off Russian oligarchs’ deposits</a> to deal with its own sovereign debt crisis. But Moscow had the last laugh, as the collapsing Bank of Cyprus sought drastic measures to avoid disaster. 60% of shareholders of the Bank of Cyprus are now Russians. It was, as the <a href="http://www.nytimes.com/2013/08/22/world/europe/russians-still-ride-high-in-cyprus-after-bailout.html?_r=0">New York Times</a> put it, delivering a systemic EU bank into the hands of the Russian oligarchs. To add a cherry on top, <a href="http://www.al-monitor.com/pulse/originals/2015/03/russia-sanctions-europe-nato-economy-cyprus-mediterranean.html">Moscow secured naval access to Cypriot ports</a> as a reward for its efforts.</p>
<p>Greece has looked even further east for investors as EU private sector participation in Greece has fallen flat. In 2009, China’s Cosco took a 33% stake in Piraeus, Greece’s largest port. More recently, <a href="http://www.scmp.com/news/world/article/1749646/greece-sell-majority-stake-piraeus-port-chinas-cosco-bidding">Cosco bid for a controlling 58% of the port</a> in the latest wave of privatisations, but Syriza may temporarily halt Beijing’s Mediterranean thrust.</p>
<p>Tsipras’ Moscow visit drew a terse response from Angela Merkel, but no deal has been announced, beyond support for a <a href="https://euobserver.com/energy/128261">Turkish Stream</a> gas pipeline from Russia. The EU’s biggest fear is that Athens will dilute or even repudiate the sanctions Moscow has faced since its annexation of Crimea in 2014. Putin’s government, for its part, has canvassed food exports to Greece, coupled with cheaper wholesale gas prices. Ironically, Germany pays much less for gas from Russia than Greece, under Berlin’s long-term Nord Stream pipeline deal.</p>
<p>But Putin doesn’t run a charity. Russia will want chunks of Greek infrastructure in exchange for cheap gas and investment, although cash-strapped Moscow doesn’t have the capital to bail out Athens, even if it wanted to.</p>
<h2>Don’t mention the war</h2>
<p>And now we shift from the Crimean War for the Second World War. This week, Greece’s deputy finance minister, Dimitris Mardas, placed a figure – $US382 billion – on the World War II reparations Athens claims it is owed by Berlin.</p>
<p>This shouldn’t prove more than a minor irritant to Angela Merkel’s government. The issue of German reparations was settled by the <a href="http://www.dw.de/german-economic-miracle-thanks-to-debt-relief/a-16630511">1953 London Agreement</a>, to which Greece was a signatory.</p>
<p>Frankly, Greece’s general accounting office should have better ways of spending its time than devoting resources to this fool’s errand. The World War II forced loan the Nazi government obtained from the Bank of Greece may be up for debate (worth around €10 billion now), but the question of German reparations was settled in international law with Bonn’s DM115 million payment to Athens in 1960.</p>
<h2>What is to be done?</h2>
<p>As I’ve <a href="http://blogs.lse.ac.uk/europpblog/2014/12/22/despite-a-looming-political-crisis-greece-is-no-longer-the-threat-to-the-eurozone-that-it-was-in-2012/">argued elsewhere</a>, the humanitarian crisis in Greece could be tackled better by the eurozone engaging in a serious study of debt forgiveness. Third World economies have persistently been granted debt amortisation in response to an inability to repay a major part of their loans. So should Greece – but with conditions.</p>
<p>Significant debt restructuring took place during the 2012 Greek crisis; yet, it left Athens with debts on the current loans until 2054. On current projections, the next generation of Greek 20-somethings are in for a lean time during the late 2030s, when debt repayments peak.</p>
<p>The Troika’s requirement that Greece maintains a primary fiscal surplus of 4.5% of GDP, coupled with structural reform, leaves precious little room for social spending, let alone domestic infrastructure investment, which will be left to foreign investors.</p>
<p>Most economists agree that a reduction of the primary surplus, combined with some flexibility from the ECB (for example, participation in the <a href="http://www.bloomberg.com/news/articles/2015-03-09/ecb-said-to-begin-buying-german-government-bonds-under-qe-plan-i71mqdno">quantitative easing program</a> the bank commenced in March) would be preferable to rigidly-high unemployment and growth-limiting austerity.</p>
<p>The IMF typically ties its loans to the implementation of a structural adjustment program. Iterative debt forgiveness or restructuring, coupled with genuine structural reform implementation, would provide the incentive to current and future Greek governments to maintain the pace of reform in return for increased national investment in human and physical capital.</p>
<p>To be blunt, when Greece acceded to the EU in 1981, it was a Second World economy. It has remained that way, with only the debt-fuelled binge provided by the appreciating euro from 2002 presenting a thin veneer of affluence. 2009 proved how implausible this really was.</p>
<p>In 1953, the bulk of Germany’s debts were forgiven, which paved the way for post-war prosperity. Washington understood what could emerge from the insurmountable debt obligations imposed upon Weimar at the 1919 Versailles Conference and injected massive amounts of capital into Western Europe, while seeking debt amortisation for Germany.</p>
<p>In 1919, John Maynard Keynes stalked out of Versailles in a rage and wrote The Economic Consequences of the Peace, prophesying the Great Depression with remarkable prescience.</p>
<p>The trouble with Europe’s leaders today is that not one possesses either Keynes’ courage or his foresight.</p><img src="https://counter.theconversation.com/content/39856/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Remy Davison's Chair is funded by the EU Commission.</span></em></p>As Greece wastes time seeking war repatriations to help cover its debts, a better solution would be debt forgiveness - with conditions.Remy Davison, Jean Monnet Chair in Politics and Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/390942015-03-23T13:41:40Z2015-03-23T13:41:40ZGame theory can only get Greece so far in its fight with Germany<figure><img src="https://images.theconversation.com/files/75661/original/image-20150323-17688-11vxbz4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Game for a fight? Varoufakis arrives in Brussels.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/92227533@N07/16516010351/in/photolist-rnd8Co-r4ykr8-r3GL4W-rh3n28-raBFAK-rasSta-rg2oVh-rxupsb-rasRFP-r9r5SK-rbb1Bj">EU Council Eurozone</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>As Greece prepares to go <a href="http://blogs.ft.com/brusselsblog/2015/03/22/tsipras-letter-to-merkel-the-annotated-text/">head to head with Germany again</a> in a bid to settle rancorous talks over its debt burden and austerity policies, it can all sometimes seem like an elaborate game of chess. That feeling is heightened by the media’s perception of one of Greece’s key negotiators, finance minister Yanis Varoufakis, as an academic “game theorist” who really should have a crucial advantage over his adversaries in the cut and thrust of negotiations.</p>
<p>Of course, it’s not as simple as that. The Greece talks provide a hugely useful test bed for the ideas of game theory, but also offer a telling glimpse of its flaws.</p>
<p>As soon as the <a href="http://www.economist.com/blogs/graphicdetail/2015/01/greeces-election">Syriza party was elected</a> with a populist mandate for debt write-offs and an end to painful cuts, the new government always seemed to be heading for <a href="http://www.theguardian.com/world/2015/mar/22/greece-and-germany-move-towards-crossroads-of-the-eurozone">a deadlock of sorts</a> with the “Troika”, the three-headed beast of Eurozone finance ministers, the European Central Bank (ECB) and the International Monetary Fund (IMF). </p>
<p>The perception seems to be that Varoufakis and prime minister Alexis Tsipras have so far <a href="http://www.grreporter.info/en/tsipras_and_varoufakis_failed_due_arrogance/12415">failed to play it smart</a>.</p>
<h2>A theory of everything</h2>
<p>This poses some interesting questions. What exactly is “game theory”? How would it help Greece in these talks? And can it help us understand the dysfunctional situation in the Eurozone?</p>
<p>Well, game theory is indeed very useful in understanding specific negotiation processes and in general helps us to understand how negotiating parties might respond to the others’ actions. It is when it gets down to specifics that the usefulness can start to wane.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=226&fit=crop&dpr=1 600w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=226&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=226&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=284&fit=crop&dpr=1 754w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=284&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/75665/original/image-20150323-17680-1pczudk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=284&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Strategic risk. Plotting the Battle of Britain from RAF Uxbridge.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/anguskirk/9296442821/in/photolist-fauGyV-9NKn2C-9NBTQp-9NEKvf-9NKkq5-61wkyo-bGGecn-63TMU8-9NFu2f-dZnfrh-ob9Ao4-faBCDa-od3g9W-d8c7mf-9NKoA3-8Bhfty-7jMSXn-c5Dmh1-9zyf1g-9NCE48-8EPKE8-9eHLSm-7HLx7h-66Y7i6-97zWNq-9MuMhR-8MEiJ3-m7FmTy-c2AV2U-7G2QUB-9zBczA-ia1TXb-dSeeMQ-nXSYUj-nZPP3C-nHs1HK-oLDAa7-bTcdQF-ia281K-nHqU9M-nZPNnj-nZVvVF-nXSYtu-nZPP5b-nHr6o1-nZCmxc-oufEZc-cf5vpS-cf5Ewo-cf5DKy">Anguskirk</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Game theory was created by mathematicians in the first half of the 20th century to <a href="http://www.econ.canterbury.ac.nz/personal_pages/paul_walker/gt/hist.htm">understand and analyse board games</a>, in particular chess. During World War II, it was developed further to understand the <a href="http://cs.stanford.edu/people/eroberts/courses/soco/projects/1998-99/game-theory/neumann.html">effectiveness of military strategies</a>. And in 1944, it was promoted as a mature scientific pursuit <a href="http://press.princeton.edu/chapters/i7802.pdf">in a book by John von Neumann and Oskar Morgenstern</a>. </p>
<p>In the following decades, game theory quickly branched out into a number of subfields based on how one approaches decision making. The object of study encompasses a broad sweep of situations in which multiple decision makers interact with each other. This ranges from board games, to dividing an inheritance among warring family members, to corporate rivalries, to countries negotiating nuclear non-proliferation and pollution abatement treaties. And, of course, to debt restructuring negotiations.</p>
<h2>Tooled up</h2>
<p>And so we arrive at <a href="https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=15&cad=rja&uact=8&ved=0CEAQFjAEOAo&url=http%3A%2F%2Fwww.springer.com%2Fcda%2Fcontent%2Fdocument%2Fcda_downloaddocument%2F9781848000575-c1.pdf%3FSGWID%3D0-0-45-502705-p173757927&ei=bQsQVdHlKtDYapL7gYAI&usg=AFQjCNEhKUsFvDUVCfR2asgnE9ObmIA7kw&sig2=iFjX2ZIMun3VDtJ4vv0okQ">modern game theory</a>. Here we can find models considering the consequences of purely selfish behaviour in interactive decision making (so-called “non-cooperative” game theory); the emergence of cooperation (“coalition formation theory”); approaches on how to divide the generated gains from collaboration (“cooperative” game theory); computer algorithms to determine optimal strategies (“computational game theory”); and models of the evolution of social behaviour in biological ecosystems (“evolutionary game theory”).</p>
<p>Therefore, game theory today can best be understood as a toolbox of theories, models and formulas that can be applied to a wide variety of interactive decision situations. These theories can be applied to problems in economics, politics, computer science, business management and even biology, where it is used to <a href="http://oyc.yale.edu/ecology-and-evolutionary-biology/eeb-122/lecture-33">understand the evolution of species</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=451&fit=crop&dpr=1 600w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=451&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=451&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=567&fit=crop&dpr=1 754w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=567&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/75666/original/image-20150323-17699-ls3ydv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=567&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Piece by piece.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/unloveable/2434532076/in/photolist-8k1hsn-dQb5im-D4cgW-D4c2S-D4bXU-D4diN-D4dn8-D4cbt-D4cdn-D4c4R-D4dqg-D4c7a-D4bZv-D4bUD-mf6EF-4H8ByY-97mV1q-jyJA-puBac4-am6rSo-5PffVv-tuA1s-BuLn-6PP7Lg-fAiB-BtKN-jo1Yt-e4Qj1V-qY78i-aUHMB-fLo2SF-fLo3Wv-fLEBgN-7EjBqd-7EjBv9-4px4SC-8TENBe-ncvdrm-4Yeb3p-rZHbY-7JAKon-gQ3zSd-RVtk-mYC7c-4cjuHZ-7pignW-aGrLeM-7pifjW-6aGTE6-38qPVS">Steve Berry</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>To work smoothly, then, whichever form of game theory you are using requires that the environment fits the specifications of the particular tool or model you choose to employ. Game theory might cover many interactive decision situations, but real life usually throws up amalgamations of a variety of such theoretical situations. You can get hints on how to conduct yourself; but beware thinking you will find a complete solution.</p>
<p>That said, the many models in game theory have resulted in very useful insights that should help make wise decisions, and perform better in any complex decision making process.</p>
<h2>Rules of the game</h2>
<p>For example, one of the most important lessons of game theory is that optimal individual decisions do not necessarily have to result in a socially optimal outcome. This is known as <a href="http://www.econlib.org/library/Enc/PrisonersDilemma.html">a “Prisoners’ Dilemma”</a> (which boils down to a test of whether two separately held suspects should blame the other or keep quiet). Our society and economy is riddled with situations that can be understood as Prisoners’ Dilemmas. Thus, selfishness should not be expected to result in a socially optimal outcome; a lesson that our neo-liberal politicians try to forget.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=333&fit=crop&dpr=1 600w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=333&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=333&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=418&fit=crop&dpr=1 754w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=418&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/75668/original/image-20150323-17678-afi45i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=418&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Poles apart?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/phidauex/10165186573/in/photolist-gugePt-cCupw9-7YwcXM-cCbvah-9sF1WN-9nJr6y-8aCyoQ-8RMcqK-74KScF-7TGVWQ-7FF5Eu-grwgu">Sam Ley</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>From a game theory viewpoint there are two major problems with the eurozone as it is set up currently. First, by design, the eurozone was created as a purely non-cooperative environment. Instead of building a system that binds the member states in a cooperative structure, the institutions were deliberately weakened at its inception to allow maximum flexibility for members.</p>
<p>Second, since its inception as a non-cooperative game, the eurozone has become a Prisoners’ Dilemma in which the pursuit of self-interest by member states has resulted in a bad collective outcome. Initially, Greece was able to exploit the system to build up unsustainable debts, facilitated enthusiastically by the German banks. Now these debts have become a collective burden, for which Greece is blamed. But the problem really is in <a href="http://www.theguardian.com/world/commentisfree/2015/mar/22/germany-obsession-greece-bailout-crisis">the design of the rules of the euro game</a>.</p>
<h2>From theorist to negotiator</h2>
<p>Yanis Varoufakis’ fame as a game theorist is based on <a href="http://yanisvaroufakis.eu/books/game-theory-a-critical-text/">writing a critical textbook on game theory</a>. But perhaps he has not been able to wisely use the lessons from game theory in the negotiations with the Troika. As in any real life negotiation process, game theories can never be applied in their pure form; there are too many aspects of these real negotiations that do not fit these theories. In those circumstances, savvy politicians might be better negotiators than academic game theorists. Practice (rather than theory) makes perfect!</p>
<p>Politicians learn to conduct negotiations by doing, rather than through theoretical introspection. They may well be better at dealing with the shifting sands of a real-life negotiation than a game theorist. Especially since game theory is not really like engineering; it is much harder to apply directly. And it means that Varoufakis cannot be expected to have any advantage over the Troika’s representatives, even if he might be able to <a href="http://www.zedbooks.co.uk/node/20952">explain very well what happened</a> when a deal gets done or Greece finds itself suddenly out of the eurozone.</p><img src="https://counter.theconversation.com/content/39094/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rob Gilles does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Yanis Varoufakis was supposed to have an academic advantage in tangled talks with the Troika. But politics can mess with the most careful plans.Rob Gilles, Professor of Theoretical Economics, Queen's University BelfastLicensed as Creative Commons – attribution, no derivatives.