Editor’s Note: This article is written by our guest contributors Jaakko Hillo[1] and Amy Dunne.[2]

“For us it is a moral and humanitarian priority to repay the debt to the people who suffer, this is our primary debt.”

– Alexis Tsipras, 17th February 2015

The plight of Greek citizens has been overshadowed by the lively media discussions surrounding the acrimonious bail-out negotiations. To date, the Eurogroup creditors have provided full bail-outs to Greece, Ireland, Portugal and Cyprus, whilst a partial bail-out was agreed for Spain’s banks. On completion of the Portuguese negotiations in May 2011, the then caretaker Prime Minister José Sócrates took comfort that the terms of the demanding deal were not as tough as those agreed with Greece and Ireland.

Two years on, in November 2013, Ireland was announced as the first country to successfully exit a “troika” program. During a European Council meeting of the Eurogroup finance ministers to discuss whether the conditions of Greece’s bail-out should moderated, the governments of Ireland and Portugal were seen to recant the rhetoric of the responsible children of Europe who would refuse “preferential treatment” to Greece. The “triple A-north” has now collectively descended upon the last remaining recalcitrant State of the “overly indebted and reckless south”. Many commentators have dug into the world of game theory to analyze the relations between Greece and the Eurogroup. In this submission it is advanced that interpreting the creditor-debtor relationship through overly simplified models of reasoning is reductive as it dictates the process in terms of “winners” and “losers”; failing to take into account the moral dimension of the creditor-debtor relationship.

The limits of chicken games

Greek finance minister, Yanis Varoufakis, has refuted the game theory hype; the use of which likely stems from his scholarly past rather than from the predictive value the perspective may elicit. The most common game referenced is the game of chicken – two cars on a single lane driving towards each other in opposite directions into possible collision. The one who drives straight is the “winner”, the one who diverts is the chicken. If neither diverts, mutual disaster awaits. The game of chicken offers easy solutions to difficult questions by characterising the counterparts as confrontational and driven by self-interest. Chicken may be illustrative; but it is limited in its capacity to explain complex negotiations involving diverse interests played out between institutions with asymmetric power relations. This reasoning suggests that the players have the ability to make independent choices. The Eurogroup represents 27 Member States who meet infrequently to explore the extent to which domestic political will may allow for concessions. Similarly, the Greek government may have tied its own hands through electoral promises.  However, the Greek negotiators do not only represent Syriza, but also the government as an institution. Electoral promises are therefore balanced out by the new responsibilities assumed by an incumbent government. In summation, the influence which negotiators can have on the game is bound to the weight and ceremony of their respective institutions. Under this chicken perspective, the game is taken for granted when, in reality, the “game” is altered by every development in negotiations. Negotiations are therefore characterised by great uncertainty.

Pitting the Greek negotiators against the Eurogroup negotiators has elicited talk of “winners” and “losers” at odds with EU ideology. The fathers of Europe intertwined European economies through the creation of the European Coal and Steel Community in hopes that the mutual dependency fabricated amongst Member States would evoke compassion and understanding between the States of Europe. Networks of debt-relations can similarly create a form of unity amongst Member States – Credit and debt integrate societies, both within and across national borders.” Therefore, the processes by which the Eurogroup has receded the ravages of the Euro Crisis has the potential to establish a foundation for positive integration. For the negotiations to succeed, both factions have the prerogative to break common ground. However, Greece has introduced a novel consideration into bail out dialogue by bringing the discussion of the moral dimension of debt to the negotiation table.

The moral dimension of debt

Game theory fails to provide the proper tools for the analysis of negotiations with unpredictable social consequences at stake. A discussion of the moral dimension of the relationship between a debtor and a creditor transcends game theory.  It is against the backdrop of gross public debt at 170 % of GDP and ravaging unemployment that the Greek government has sought a four month extension of its current bail-out agreement. During this four month extension, the “real” negotiations on substantive terms are to proceed.

It is not speculated empirically whether the Greeks have endured a significantly greater struggle. Nevertheless, mandating the Greeks to swallow the same bitter medicine as other bail-out recipients is based on a fundamental misconception. When “preferential treatment” is implored, it is not the amount of debt per se that is determinative, but rather it is the ability of a Member State to bear the debt in the long-term, make structural reforms according to creditor demands and at the same time manage core functions of the government. The Greek economy is not strong enough to provide the means for the government to perform all tasks without creating massive social unrest and grievously impacting Greek citizens. In situations where Greece lacks the fundamental capacity to alleviate the adverse effects of austerity on its vulnerable citizens; the moral dimensions of the creditor-debtor relationship are painfully evinced. 

The negotiators are challenged to find common ground by creating outcomes that are acceptable by all, yet optimal by none with the objective of giving relief to suffering citizens of Europe and ensuring the viability of the EU. When framing the negotiations as a muscle-flexing game of chicken; Greece may seem to be an unreasonable participant teetering on the verge of “Grexit.” Upon closer reflection, taking stock of the moral dimensions of the debtor-creditor relationship and the extreme plight of the EU’s “deficit-sinners;” the Eurogroup may be seen to be the most negligent participant to have come to the negotiation table. In these circumstances, as per Stiglitz, “it is not debt restructuring, but its absence, that is ‘immoral.'”

Image Source: manager.bg

About the Contributors

[1] Jaakko Hillo - Helsinki Europe officeJaakko Hillo, 26, is pursuing a Master’s degree in Political Science at the Department of Political and Economic Studies at University of Helsinki. He holds a BA in Political Science since 2013 and is currently completing Bachelor’s studies at Hanken School of Economics. His academic interests include administrative reform, innovation and organizational adaptability.

[2] DunneAmy Dunne, 25, is an LLB graduate from Trinity College Dublin also holding an MA Masters of Laws from KU Leuven (cum laude). She is an Associate Features Editor E-International Relations and has worked for the Council of Europe, European Parliament and United Nations. Her academic pursuits relate to international antitrust with a focus on developing countries.