You can't reach the age of 56 and be a chartered accountant without having learned one or two things about financial negotiations. Drop the word financial and I'd hope that statement could be generalised. So I think I can offer an observation or two on Angela Merkel's negotiating position on Greek debt. The Guardian reports that:
Angela Merkel has ruled out the prospect of Greece securing further debt cuts from its creditor nations
The Germans and Greeks have not yet met on this issue but it's pretty fair to say that what Angela Merkel is saying is there no negotiating to be done. It's game over before it has begun.
She's ignoring the fact that Greece's economy is being destroyed by austerity and with it the Greek capacity to repay.
And that Greece is now, according to Duncan Weldon of the BBC, collecting 44% of its GDP in tax, which is remarkably good.
Or the fact that Germany did, of course, have its own debt waivers after both World Wars and in the second case could not have recovered without it.
Instead she's just saying no.
As negotiating positions go that is crass. The golden rule of negotiating is that if you want to reach an agreement you have to always leave room for the other side to move. You may not provide much room, but the opportunity has to be created or they have no reason to be reasonable and you look stupid when they walk away.
And Merkel will look stupid. If the Greeks walk away she undermines the Euro.
She also destroys a vision of European democracy.
And she plays into the hands of anti-Europeans.
Whilst reinforcing views of German intolerance.
And at the same time will crystallise bigger losses in German banks and the ECB than would ever happen if negotiation were to take place.
So she's put herself in a dire position, by choice, and in many ways has handed all the cards to Greece.
You would have thought she would have learned something about negotiation by now, but apparently not. And that really does not bode well in a very great many ways.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
My flawed hypothesis is that it could very well be that Merkel knows that she is sitting on a powder keg of her own – German society.
I suspect that history is forming her opinion. The second world war was the result of economic chaos in Germany; it more or less enabled Fascism which recent events tell us is alive and well in the country.
Post war reconstruction in Germany and Japan was intended to make them economically robust enough to ensure that such economic chaos never occurred again to give rise to such war-like behaviour.
It could be that many a German leader has shall we say ‘traded’ on this latent potential (or is it now a myth?) for the German public to turn nasty when economic fortune turns against them; they’ve got into the habit of using it as a bargaining point?
Asking the German public to make sacrifices that would impinge on their lifestyle expectations (especially in the West) might be a dangerous move for any moderate German politician especially at this time (although the Schroeder regime did actually get reductions in pay and conditions that led to less savings being made by the German public; savings that may have actually helped Germany to support the Eurozone today had they been able to make them!!).
I wonder what BMW sales are like in Greece?
Anti-austerity measures might see them pick up in Greece if Germany could be more flexible. As Paul Krugman says – everyone’s wages is someone else’s wages! And this is as true between countries as much as within them.
Or, Merkel could just be a good friend of the ECB – especially the private bankers who now seem to dominate this most opaque of institutions.
This surely casts a VERY interesting additional light on your analysis, Mark, approaching the question from a very different viewpoint.
http://moneyweek.com/merryns-blog/whos-subsidising-who-in-europe/
“all economics is about the stories people believe: “-Indeed!
And there’s also this example of “do as I say, not as I do.
https://tompride.wordpress.com/2015/01/26/breathtaking-german-hypocrisy-germany-owes-greece-11-billion-euros-in-unpaid-loans/
” according to Duncan Weldon of the BBC, collecting 44% of its GDP in tax”
Can you post a few links on that? I really, really, want that to be true.
I worry that their chaotic and corrupt taxation system has collapsed completely; and, worse, that both their published tax compliance and their visible (or estimated) GDP are a fiction.
Meanwhile, I cannot see any redeeming features in Frau Merkel’s unhelpful declaration of intransigence.
There’s a difference between a ‘tough negotiator’ and a brick wall, and I expected an experienced European politician to know better. So here’s a deeply uncharitable observation: Ms. Merkel is and always was an Ossi – an East German – and the Socialist Republics under Soviet tutelage never, ever, contemplated a default or even a renegotiation of their debts to the West.
He said it in Newsnight on Friday
There are two opinions that I overhear among bankers:
1: The Greeks have made no progress in achieving tax compliance;
2: There are *no* reliable figures on this. None. Everything is published in pursuit of a political agenda and much of it is fiction.
It is entirely possible that tax compliance is improving in Greece. I’m prepared to believe that they’re collecting 40-50% of taxes due on wages and profits arising in the *visible* economy…
But I have no reliable data whatsoever to support such a belief, and the handful of market professionals I’ve spoken to are far more pessimistic.
It is, of course, well worth asking what *their* agenda might be. Or rather: “What are they shorting”?
Richard,
The advice you offer is both reasoned and cogent.
The big question, will Berlin listen to this powerful missive you have put forth?
James
I very much doubt it
Richard
Richard,
This calls for a modern day Wittenberg moment. This blog should be translated and nailed to the door in both Frankfurt and Berlin!
🙂
Yes, but the German people will. They already are doing. Good education and a sense of European solidarity are both far more abundant in Germany than in UK.
When Syriza make the German people a common sense offer – a win-win for both countries – the Germans themselves will put the necessary pressure on Merkel.
The Guardian says she’s said she won’t negotiate, but I wonder. She’s not so big on macho posturing. If the German people awake and tell her to, maybe she’ll talk, and maybe she’ll do a win-win deal.
In fairness to ‘Mutti’ I don’t think she has been required to demonstrate much in the way of negotiating skills. Europe, post-single currency, seems to have increasingly become short hand for ‘Greater Germany’ and ‘european opinion’ synonymous with ‘opinions coming out of Berlin’.
The point made in the Moneyweek piece posted by Andrew highlights the reliance on Europe of the German Economy. The prospect of Greek default and/or exit (and the seismic faultlines in the Euro that would ensue) is surely going to be the elephant in the room when it comes to negotiations, and something that the German Chancellor will find it difficult to ignore. Alexis Tsipras and Yanis Varoufakis seem to me to be doing a very good job of making sure that, should that happen, the blame for it will not be perceived as lying in Athens.
I think, at least I hope, that SYRIZA are playing a limited hand very adroitly on this, and that Merkel’s (publically) hard line has as much to do with posturing as it does with realpolitik.