You do not have to be a rocket scientist to conclude that most of the proposals put forward by the “experts” to pull the Greek economy out of the mud are pretty disastrous, not least of all for the Greeks!
However, while we were distracted by all of the political controversy that took place over the past few months, it occurs to me that we may have been looking at this whole issue back-to-front.
If you read my previous post, “Why I’ve Changed My Mind About a Grexit”, carefully and right through to the end, you may have picked up on some very enlightening points concerning Yanis Varoufakis and the events of the past seven months that
At this point, let me be clear. What follows is not insiders knowledge of the events that occurred! It is only my supposition, based on the known facts. However, I have also presumed that certain actions took place, based on the outcome of certain events.
The MoU of the second bailout expired earlier this year. The results of this austerity plan were not good, since Greece was effectively no better off at the start of 2015 than they were at the start of 2014, except that the country was in more debt. Greece was obligated to repay her external debts and, since these debts could not be sufficiently refinanced through the usual bond auctions, there were only two choices left. Either “default on the debts” or “get the money from someone else”, and more specifically, the someone else would have be the EMU, ECB & IMF.
So now let us review the proposals and then, afterwards, consider how events unfolded:
The Troika (EMU, ECB & IMF) – “Plan A”:
a) Greece must honour all of their loan repayment obligations. (A variety of reasons were given why this was said to be non-negotiable and you can read more about the background regarding this issue in articles elsewhere). b) The Troika did not see any reason to change any of the conditions of the original bailout MoU agreement, but conceded that small modifications or adjustments could possibly be made, as long as the basic structure, ie. the austerity principle, remained. c) Greece would remain a member of the EU and Eurozone. d) Greece would receive funds to repay maturing loans and recapitalise the banking system.
The Troika (EMU, ECB & IMF) – “Plan B”:
a) “Grexit”. The exact details of the Troika Grexit plan were never really explored fully or discussed in any great detail, although it seemed that the Troika Grexit was not exactly the same as the Greek Grexit. This difference, if it existed, does not really matter anymore.
Greece – “Plan A”:
a) Greece would honour all of their loan repayment obligations. (Contrary to what many people thought about the Greeks, there was a general understanding and acceptance by the Greek government that to default on the debt repayments was not a good thing to do and you can read more about the background regarding this issue in articles elsewhere). b) Greece would change a lot of conditions that were in the original bailout MoU agreement, essentially reversing the policy of austerity. c) Greece would remain a member of the EU and Eurozone. d) Greece would receive funds to repay maturing loans and recapitalise the banking system.
Greece – “Plan B”:
a) “Semi-Grexit”. The so-called Greek Grexit plan (the Varoufakis “Plan B”) was never a real plan to exit the Euro. In the final analysis, it seems that it only consisted of some clever (and desperate) ideas to try to exert some pressure on the Troika to engage more positively with the Greeks on the Greek’s “Plan A”. In addition, the “Semi-Grexit” also differed in many ways to the Troika’s Grexit. Again, this difference, does not really matter anymore.
On the face of it, the Troika’s “Plan A” looks very similar to the Greek’s “Plan A”. If I had been in Varoufakis’ shoes, I might have been tempted to state that, because the two positions appear to be so very close together, an agreement looks possible……and he did!
However, here’s the thing!
Instead of being a problem solving forum, the Troika-Greek government relationship in the Eurogroup, in the Working Groups and amongst the politicians almost immediately became adversarial. In the media and amongst the participants, the process was described as a negotiation. But it was not and it would never be! I will not spend any time discussing the dynamics of negotiations, except to observe that, when the one party’s position is very strong and the other party’s position is very weak, the outcome is usually not a negotiated one. The outcome will be what the stronger party wants. Varoufakis was widely criticised that he was the primary cause for this adversarial relationship developing. But I am not convinced that this was really the case.
In reality, and this is what seems to have frustrated Varoufakis so much, the Greek’s “Plan A” got side-lined, ignored, call it what you will, very early on in the “negotiations”. Cleverly, in one way, but short-sightedly, in another, the Troika simply ignored the Greek’s “Plan A”. Secondly, the Greek’s “Plan B” was no match for the Troika’s “Plan B”.
This is how badly things were in an imbalance:
- The Troika realised, very early on in the process, and this was affirmed constantly by the Greeks themselves, that Tspiras would do anything and everything else except a “Grexit”. And he would maintain this stance even when, economically speaking, a Grexit seemed to look like the better choice (as it did at the very end). Politically, Syriza had committed themselves to uphold the populist vote that had swept them into power on the basis that austerity would be ended whilst Greece still remained in the Eurozone.
- (Nearly) everyone, from the EU politicians, the ECB, the IMF, the media, the Greek opposition parties, economists and academics to the bloggers on the internet, had warned the Greek people about the perils of a Grexit. That job done, the Troika knew that they had the Greek government in a vice.
- The Greek’s “Plan B” was a half-hearted attempt, a last ditch effort to try to frighten the Troika into believing that Greece would actually even consider a Grexit, let alone go through with it. And the Troika were not frightened.
By the end of April, after the initial election victory euphoria had worn off, Tsipras and his team must have realised that it was looking more and more likely that they would not be able to fulfill their election promises. This caused no end of frustration to Tsipras and Varoufakis who knew that they were standing on the edge of a precipice. It was becoming clear which way the whole “negotiation” process was going to go, and not being fools, they decided that they would have to come up with another proposal, “Plan C”. However I contend, and for obvious reasons, that this plan had to be and was, cleverly camouflaged. To proceed forward with the new plan, Tsipras made changes to the Greek negotiating team. Varoufakis was moved to the background, Euclid Tsakalotos replaced him as the “front-man” in the role of chief co-ordinator and Giorgos Houliarakis replaced Nicholas Theocarakis as the chief negotiator.
Greece – “Plan C”:
a) Greece would honour all of their loan repayment obligations. b) Greece would accept a lot of conditions that were in the original bailout MoU agreement, essentially continuing the policy of austerity. In order to make this more acceptable to the people, small concessions were to be requested (not demanded). c) Greece would remain a member of the EU and Eurozone. d) Greece would receive funds to repay maturing loans and recapitalise the banking system.
On the face of it, the Greek’s “Plan C” looks even more similar to the Troika’s “Plan A”, than the original Greek’s “Plan A”. If I had been in Tsipras’ or Varoufakis’ shoes, I might have been tempted to state that, because the two positions appear to be so very close together, an agreement looks possible……and they did!
The problem that the Greeks encountered with their new plan, was that the Troika refused to co-operate regarding part b). The stance of the Troika angered Tsipras and he lashed out at the Eurozone ministers, a number of times. Although Varoufakis was “sitting on the bench”, it seems to me that the part that he played was to keep the focus of the world on the Greek’s “Plan A”, while Tsakalotos and Houliarakis were trying to get concessions from the Troika on part b) of the Greek’s “Plan C”.
After two months had passed with very little or no progress having been made, the Greek government eventually found themselves backed into a corner. Tsipras thought that he had found a face-saving way out……a referendum…..let the people take responsibility for signing up for more austerity.
But the referendum backfired, the people voted “No” and the government found themselves in “no-man’s land”. Tsipras had no option but to capitulate to the Troika. It was the Greek government and not the Greek people who shivered with fear when they realised that the Troika’s “Plan B” was a real Grexit.
So, in retrospect and in reality, it can be seen that, for most of the time up to and including the third bailout agreement, the Greek government were actually dealing with their “Plan C” and not with Varoufakis’ “Plan A”.
So that begs the question………what happened to “Plan A”?