Demonstration against the European Central Bank in Thessaloniki, February 2015. Demotix/Giannis Papanikos. All rights reserved.Tony Curzon Price and Frances Coppola have presented compact summaries of a hypothetical game between Germany and Greece: two players, two moves, and a payoff matrix. The issue between them is the structure of the payoffs, and specifically whether the “hard/hard” outcome--namely “Grexit”--is favorable or disastrous for Greece.
Curzon Price is clearly right that the “game” is not “chicken.” It is not zero-sum. But is it a game? Both authors overlook the stricture of Greek Finance Minister Yanis Varoufakis in the New York Times three weeks ago. Varoufakis wrote: “...my game-theory background convinced me that it would be pure folly to think of the current deliberations between Greece and our partners as a bargaining game...”
In game theory the exact motivations of the players and structure of the payoffs are known. In the real world of Greece, Germany and Europe they are not. They are not playing for chips, points, or money. And this is not a two-person game, but one of shifting alliances between multiple entities with sometimes-congruent, sometimes-conflicting goals. It is more like the old board-game “Diplomacy”-- less a “game” than a set-up for underhanded betrayals--which I cordially loathed as a child.
To take first the position of “Europe,” what did it know, going in, about the Greeks? Not enough. Tsipras and Varoufakis had no record in power. The internal cohesion of SYRIZA was uncertain. Would the Greek people stand up or fold under pressure? Past experience foretold that, faced with pressure, European governments no matter what their campaign promises and their internal politics would eventually buckle to threats and tow the line.
For this reason, the initial posture of the “partners” had to be tough. It had to be tough, even to the point of being unreasonable, as the “sign up or get out” line of German Finance Minister Wolfgang Schäuble surely was. Otherwise, an eventual compromise could not have been sold to the Bundestag--let alone accepted, even grudgingly, by the electorally-threatened Spaniards and Portuguese.
But it was also clear enough that if Greece did not buckle, then in the end the European side would have to give a little. Did the Greek side know this? Not for sure. The opaque inner dynamics of the German government were worrisome, like command-and-control over the Bomb. But the posture of the institutional players, notably the IMF and the European Commission, and some of the governments signalled eventual compromise. And that Chancellor Angela Merkel was unlikely to decide to sacrifice Europe merely to save Mariano Rajoy from Podemos? An easy call.
Thus while Wolfgang Schäuble could bluff --and indeed he had to--for Varoufakis bluffing could have been fatal. To the contrary: the new Greek government had to become both known and credible. It had to demonstrate that it was (a) serious and reasonable, (b) unbending on certain points, and (c) unlikely to collapse whatever happened.
The first could be satisfied by presenting a clear program that met necessary conditions, stated essential limits, and refrained from all insincere threats. The second was met, in part, by forming a coalition with the right-wing populist Independent Greeks--a bit like burning the boats before Troy. The third was established mainly by the astonishing initial support--an approval rating above 80 percent--given to Alexis Tsipras by the Greek people.
In this way, Greece made clear that it had no “Plan B” and that it would not touch the “Grexit card.” If Grexit happened, the responsibility would fall on Europe. And however much Herr Schäuble might mutter imprecations, Germany was not going to make that move.
Thus a “confidence-building” act of self-restraint by Greece helped to create the climate for a similar act of restraint by Germany. And the Eurogroup ultimately came to agreement. “Constructive ambiguity” made the question of loss of face unimportant, as it is now established that neither the Greek nor the German government is going to implode over details.
In this way Greece and Germany changed the structure of their relationship. It was no longer a “one-time, non-cooperating” bargaining game--which would have produced disaster--but something more like a “cooperative” and “repeating” process. This does not mean that the two countries share the same diagnosis or that they will agree on policies. But at present writing, they are getting down to business. There must follow detailed discussion of plans, agreements to get past funding hurdles, and measures to ensure that the Greek government does not run out of money and that the Greek banks do not collapse.
Unfortunately, Germany is not the only European player--or if she is, her command-and-control remains insecure. And as John F. Kennedy observed when a U-2 strayed over the USSR during the Cuban missile crisis, “there is always some son-of-a-bitch who doesn't get the word.”
In recent days, out of motives not yet clear, the European Central Bank has acted to undermine the spirit of the short-term agreement, using tools that affect Greek bank liquidity and government financing options. In part because of this, Greek finances are in trouble, the pressure remains on, the near future remains uncertain, and the policy discussions--which can only succeed if they can operate in time and quiet--may prove more difficult than they should be.
Surely, it is no time for such games.