Greece: Playing against the clock

by George Tsebelis

Eyes on Europe
Center for European Studies
University of Michigan
February 18, 2012

This is a critical time for Greek debt negotiations, and, regrettably, communication between the Greek government and the “troika” (the combination of the Commission of the EU, the European Bank, and the IMF) is out-of-sync. There are obvious reasons. The track record is negative (the first bailout failed, thereby necessitating a second one), and each side has many things to blame the other for, with neutral observers seeing both sides. It is true that the memorandum was focused mainly on financial issues of debt repayment and not on economic recovery of Greece to enable it to service the debt in the long run. It is also true that the Greek side fails to meet the goals set by the plans.

At this juncture, distributing blame is neither useful nor will it generate any consensus. Rather, we must focus on the future, in order to avoid a collapse of the negotiations, a disorderly default, and the world wide consequences (which despite claims that they will be less significant than two years ago) will be felt throughout the EU as well as in the US, China, and obviously the rest of the world.

The two negotiating parties have reached the following stage: On February 12 the Greek Parliament by a 2/3 vote accepted the new memorandum agreement. The meeting of the Financial ministers of European countries was planned for February 14, and it was replaced by a video call and postponed until February 20. In the conference call, issues regarding the lack of confidence in the Greek commitment were raised, and assurances about post-election Greek compliance to the agreement were sought.

The requirement of “post-election compliance assurance” is a terrible idea that by itself has the potential to derail immediately the entire package and send Greece into disorderly bankruptcy, and the EU and the world into a financial tailspin. Here is why: First, the request is impossible to satisfy in ANY democracy. Second, Greece is now in a much better state politically to fulfill its obligations than it was a week ago, or for that matter, since 2009.

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