Monday, February 16, 2015

Wanted: A Top-Notch Demagogue

The same source I quoted before has another article criticizing Greece's negotiation style.  For one thing, the negotiators are criticized for not understanding what they are up against:
Greece’s idealistic new leaders seem to believe that they can overpower bureaucratic opposition without the usual compromises and obfuscations, simply by brandishing their democratic mandate. But the primacy of bureaucracy over democracy is a core principle that EU institutions will never compromise.
Not very encouraging!  But the author is making somewhat the same confusion when he gives advice on negotiating style.  It should be possible, he says, to reach a reasonable agreement, since what the Greeks want most is relief from austerity and what the Germans want most is no reduction in nominal debt.  As for how to negotiate it, he offers the example of Mario Draghi, head of the European Central Bank.  What Draghi wanted most was a large-scale quantitative easing (monetary expansion). In negotiating with the Germans, he took a hard line on an issue of great importance to them -- debt sharing in case of a default.  After holding the line, beating his chest, and insisting that debt-sharing was absolutely essential, he then backed down after getting what he really wanted -- approval of a large-scale monetary expansion that Germans traditionally regard as anathema.  The author proposed the the Greek finance minister could do the same -- treat debt reduction as the primary issue, and then back down after getting concessions on austerity.  Both cases would all Germany to celebrate a symbolic victory that masked a substantive defeat.

What the author ignores is that such a strategy is a lot easier for an EU bureaucrat or a central banker than for a democratic politician.  An EU bureaucrat or a central banker speaks only for a few fellow bureaucrats or central bankers who are in on the joke and won't take symbolic defeat too hard.  A democratic politician has to deal with a large public who will take him at his word and be outraged at the symbolic defeat and not assuaged by assurances of the substantive victory.  If a democratic politician makes a loud, public, chest-thumping declaration that debt reduction is non-negotiable, the democratic public is going to hold him to it.  If he yields at the last minute and then insists that concessions on austerity are really what is most important, the public will not be in on the joke and will not be amused.  Such things have brought down democratic governments.  Granted, a crisis of that type can be somewhat averted by having the finance minister, not the prime minister, do the negotiating and backing-down and be the fall guy.  Then the government can remain, but with a new finance minister.  If concessions on austerity lead to real recovery, the remaining government will ultimately be forgiven.  Hell, even the finance minister might start to look prescient in hindsight.  So you can say the sacrifice was worth it if it brings about a real recovery.  But real recovery takes time, and in the short run, this sort of diversionary tactic is a very chancy gambit.

Alternately, the author suggests that the finance minister might be more conciliatory, agree that there will be no debt reduction, and show that none is necessary for relief.  This will bring on less public wrath, but is a much weaker negotiating technique.  What is worst, the author says, is to waver between the two.

In the meantime, news from negotiations is uniformly bad, with a position of no concessions.  Well, maybe they will pull a rabbit out of the hat in the next week or so, but I am inclined to think that Greece needs to be preparing for the worst and hoping that it will be just a bluff.  In case it isn't, what they need is (1) a first-rate team of economists, with experience managing successful devaluation-and-defaults, such as Russia, Argentina, or Iceland; and (2) a first-rate demagogue to serve as front man and make the people angry enough to endure that hardships that will be inevitable under the best of circumstances.  A demagogue is (usually) someone who says no concessions when it is an utterly unrealistic position to take.  Well, occasionally they can come in handy.

And now enough of Greece (ancient or modern) for the time being.  I expect to return to one or the other before long.  But in the meantime, the subject of politicians who say no concessions when it is unrealistic is coming up yet again (and again and again) in domestic politics, so I intend to turn there for a while.


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