Politics will dictate the ending of the Greek bailout saga

Greece’s dramatic bailout negotiations will soon be coming to a head one way or the other. Although the Greek government has been painstakingly throwing a veil of uncertainty and misinformation over its real financial and fiscal position, most pundits would agree that state coffers are running bare and that, absent an interim, piecemeal or final bailout agreement, Greece will not be able to pay off the consolidated IMF loan tranches coming up at the end of June.

The SYRIZA government’s bargaining strategy has been one of “coercive deficiency,” “creative ambiguity” and politicization. According to the logic of “coercive deficiency,” a debtor’s (economic) weakness is (bargaining) strength vis-à-vis its creditors. The weaker the economy appears to be, the lower are the primary surplus targets to which he can credibly commit. Yet, this precarious game of attrition, marked by a freeze-out on public and private payments and a ballooning of the government’s arrears, has brought the Greek economy back on its knees by draining the liquidity out of the system. Growth levels are back into negative territory, tax revenues are once again plummeting and unemployment levels are back on an upward trend.

Clearly, Greek Prime Minister Alexis Tsipras’s high-risk political gamble is that he can keep riding his soaring waves of popularity through these rough waters of economic downturn until he achieves a favorable negotiation outcome. Recent polls seem to confirm his assessment as the Greek people have shown remarkable signs of resilience and cool all things considered. The SYRIZA-Independent Greeks coalition government has so far signaled its resolve to safeguard the disposable income and pensions of its core supporters in the public sector and the salaried middle class at the expense of the beleaguered private sector.

The tenet of “creative ambiguity,” which has been openly proclaimed as another key feature of the Greek government’s bargaining posture, is closely wedded to the latter’s attempt to politicize the bailout negotiations to the highest degree possible. “Creative ambiguity” might be employed in a negotiation both to disguise the distance in the negotiating parties’ position on a contentious issue and to do so in a manner that enables each to claim a favorable agreement. In the case of the Greek bailout, it refers to the application of flexible fiscal rules and targets achievable by a home-grown and politically feasible mix of fiscal consolidation and structural reforms.

The politicization of the bailout negotiations refers both to the choice of European summitry as the appropriate institutional arena for an ultimate political solution but also the attempt to avert the imposition of wide-ranging hard conditionality arrangements enforced by self-serving and unaccountable supranational bureaucrats (namely, the ‘troika’ or ‘institutions’).

Both EU consensual politics and the fear of uncertainty over the effects of a potential Grexit would dictate that some type of agreement will emerge after months of strategic posturing and political brinkmanship on both sides. It remains to be seen whether such an agreement will require the guaranteed support of centrist pro-European opposition parties in the Greek Parliament (such as Potami, PASOK and even New Democracy) in order to be ratified. If that is the case, Tsipras will have no other choice but to call snap elections with unpredictable repercussions for the country’s political and economic stability or attempt to form a unity government.

In order to tame SYRIZA’s rebellious left-wing factions, Tsipras may well threaten to avail himself of a useful constitutional weapon at his disposal, namely the fact that he would have full control over the drafting of closed electoral lists in a potential election contest following the dissolution of a less-than-one-year-old Parliament.

On a more general note, it was a politically motivated decision to let Greece into the euro; it will take a mighty political compromise on many different levels to keep it in. Unlike ancient Greek tragedies, the unraveling plot of this modern Greek drama is still in the hands of its main protagonists.


* Nikitas Konstantinidis is a university lecturer in international political economy in the Department of Politics and International Studies at the University of Cambridge. He is a member of the Greek Public Policy Forum.