Greek Debt as Labor Contract Negotiations

Negotiations over the Greek debt in Europe in recent weeks reveal noteworthy parallels with labor-management contract negotiations.

On the ‘management’ side are the Troika—the European Commission, the IMF, and European Central Bank, and its apparently delegated bargaining team of Eurozone finance ministers, gathered in Brussels. On the ‘labor’ side are the representatives of the Greek party, Syriza, its president, Alexis Tsipras, and Greece’s finance minister, Yanis Varoufakis.  Behind the Troika stand their constituency—the Euro bankers, US and global hedge funds, private equity firms (aka shadow bankers) and big individual capitalist investors. .  Behind Tsipras and Varoufakis, the overwhelming majority of the rank and file Greek people.  It all has a very class character, in appearance and in fact.

Like all labor contract negotiations, nothing really gets settled to the last hour before the contract expires. At least not the important stuff. In between, it’s about testing, trying to draw out the other’s true positions, occasional bluster in the media, and much ‘signaling’ of one’s future limits in negotiations. And so it is in current negotiations over the Greek debt today, and that will continue at least up to the expiration of the current bailout agreement.

The ‘contract’ in question—the current debt-austerity program negotiated back in 2010 and renegotiated in 2012—is set to expire February 28.  With no settlement by that date, thereafter one of three things can happen:

First, Greece can default on existing debt payments that start coming due in March and can refuse to continue to abide by terms of the old debt-austerity agreement in the interim—a kind of a ‘work slowdown’—while leaving open an offer to continue to negotiate. Or it can announce it is going to leave the Euro, and break off negotiations, unless and until the Troika requests a return to the table to discuss new terms based on Greece’s proposed new agenda of renegotiate debt but not the ending of austerity. The latter event, a Greek exit, would represent a kind of a ‘strike’ alternative.

Second, the Troika and its finance ministers can refuse to agree to any of the temporary bridge loans Greece has requested, refuse to negotiate any further, and allow a run on Greek banks to occur in the interim as a way to pressure Greece back to the bargaining table on its terms. This, in effect, implements a kind of a management ‘lock out’.

Neither ‘strike’ nor ‘lock-out’ is likely at this juncture, nor even on March 1 and the expiration of the current ‘contract’.

The third scenario is that both the Troika and Greece continue to negotiate past the February 28 deadline, but with no bridge loan provided by the Troika and with Greece making no payments on past debt.  At the same time, Greece continues to proceed with dismantling austerity, but without declaring an exit from the Euro.  In this most likely scenario, both sides agree to behind the scenes arrangements, not apparent to the public, designed to keep Greek banks temporarily afloat as they keep talking.

Whether lock-outs or strikes or ‘continuing to work without a contract’, as they say in labor negotiations, the bargaining doesn’t end on February 28 but continues thereafter. In the present, pre-February 28 contract expiration phase, it’s all about bargaining over whose agenda prevails. After February 28, it’s bargaining about the terms of the agenda (or some combined agenda) agreed upon The bargaining positions of both parties on the table today, as the February 28 ‘contract expiration’ approaches, appear as follows :

Varoufakis wants a severance of the austerity terms from the debt terms and renegotiations. Syriza therefore refuses, thus far, to simply extend the old ‘contract’ beyond February 28 with its tight linkage of continued austerity to the debt terms. He has proposed the Troika and Greece embark upon a totally new set of negotiations, where austerity is non-negotiable and will be dismantled by Greece as it sees appropriate over time and in content; where the Troika grants Greece a four month bridge loan to keep its banks from collapsing (and from potentially spreading the contagion to the rest of the fragile euro-wide banking system). The main focus of debt renegotiations thereafter will be about swapping out current onerous debt and terms for new growth-bonds in which debt would be repaid according to Greece’s recovery from depression. Greece is therefore now attempting, in the pre-February 28 period, to establish this new bargaining agenda. If it succeeds, it will obtain a slight upper hand in negotiations. So far, however, the Troika are adamantly resisting the agenda change.

However, both parties this past week have been feeling each other out about a possible combined agenda they can both live with.

Troika representatives—led by Jeroen Djisselboem of the European Commission, which holds the lion’s share of the Greek debt ($143 billion of the $270 billion), with German finance minister, Wolfgang Schaeubele, and ECB chair, Mario Draghi, at his elbow—are refusing to agree to Greece’s proposed new agenda for negotiations.  They insist that all debt must be repaid and no debt forgiveness in part will be accepted. They are especially resisting any agreement in principle to roll back austerity measures, while emphasizing as well that the old ‘contract’ must continue past February 28 ‘as is’. After the 28th, their position is they will only then discuss the terms of austerity.  But that’s like saying, sign the new contract extension and then we’ll talk about changes, when it’s too late to make any.

The Troika’s bet is that, in the period between now and February 28, capital flight from Greece, and potential early signs of runs on its banks, will force Syriza and Varoufakis to cave in, agree to an extension of the existing bailout program, and then negotiate austerity and debt. Already capital flight is accelerating this past week, and could result in 20% of Greek banks’ deposit base rushing north to Germany and elsewhere by some estimates.

As if to challenge Greece with a possible Greek banking crisis, on MondayFebruary 28, the Troika and finance ministers sent Greece an ultimatum: agree to their agenda, and extend the bailout program as is beyond February 28, or no loans after February 28. As a ‘sweetener’, as they say, the Troika offered in principle to consider reducing some of the austerity, but only at some undefined subsequent date and without specifics.  The Troika has thus clearly suggested its willingness to consider some kind of ‘hard-soft’ discussion, of token austerity adjustments for continuing severe debt terms. But the emphasis for now is clearly on the ‘hard’. What this hard ball challenge means is that the Troika has decided to test the Greeks’ resolve. To see if Syriza will back off their current position to change the agenda, and to accept the Troika’s traditional agenda of negotiating more debt in exchange for more austerity.

Syriza’s chief negotiator Varoufaki’s immediate response on Monday was to reject the ultimatum and reaffirm Greece’s insistence on changing the agenda—i.e. to severe austerity measures from negotiating new debt terms.

The Troika undoubtedly still has another proposal in its back pocket, that it will possibly offer at the 11th hour should enough pressure be brought to bear on Greece through its Greek banks.  But it won’t offer that until the last minute. And if it appears Greece is weakening in its resolve to insist on no current debt program extension past the 28th, the Troika won’t even make its ‘last and best’ offer at the 11th hour.  It will wait until the deadline comes and goes, to see what Greece will do—both at the 11th hour and in the period immediately after the 28th.

Greece therefore needs to ‘up the ante’ as they say between now and the 28th, in order to force the Troika to put its best offer on the table before the 28th.  It has about a week to do so. Announcements of preparations to leave the Euro might precipitate the offer. Or maybe an announcement of Greece having begun negotiating a ‘bridge loan’ with China, or with the newly established ‘BRICS Bank’.  Or event announcing it intends to seek a bridge loan from Russia. That could get the Troika’s attention! It would certainly get the USA to look at the possibility of intervening and applying political behind the scenes, either in relation to the Troika or Greece, or both.

Rumors in recent days of Greece possibly agreeing to extend the February 28 deadline for a limited period of time of 4-6 months might prove acceptable to the Troika. But that proposal, coming from Greece at this stage in negotiations, could also signal a weakening of Greek resolve and could be interpreted by the Troika hardliners as a break in Greece’s position to date.   Hardliners on the Troika side could use this ‘compromise’ suggestion by Greece as a sign of weakness, and push for a still tougher line by the Troika toward Greece.

Should that major shift by Greece occur in fact, and is then rejected by the Troika, Greece will almost certainly have to ‘up the ante’ and publicly and visibly start preparing for a Greek exit in order to convince the Troika its suggestion of extension was not in fact a sign of weakening resolve with regard to austerity rollback.

A possible ‘face saving’ compromise for both sides at the 11th hour, or immediately after,  could take the form of Greece agreeing to extend the existing agreement for a maximum four months—but, and this is important, an extension of debt without austerity terms previously included in the agreement. In other words, the debt terms would be extended four months, but the austerity terms would not. Greece could continue to roll back austerity that way, saying it has remained committed to its mandate; while the Troika could say that it got Greece to extend the current bailout with debt terms as is.

Outlines of a possible last minute compromise by the Troika briefly appeared last week, confirming that the Troika has another offer up its sleeve that it has yet to put on the table. Earlier this past week, one faction in the European Commission signaled that a four month bridge loan might be possible. But the hardliners in the Commission quickly intervened and blocked it.  The hardliners behind Djisselboem then apparently proposed a six months extension of the current bailout, together with some weak hints of some token adjustments to austerity.  Greece rejected the token adjustments.

The fundamental differences at this point therefore boil down to: the Troika want some kind of agreement to extend the current bailout program beyond February 28. That’s a precondition for further negotiations, as is no debt forgiveness. Conversely, Greece wants to continue to roll back austerity, fundamentally and not tokenly.  Can Greece agree to some extension of the current bailout as is, while the Troika agrees to some fundamental dismantling of austerity?  Can extensions and debt terms be traded off for reductions in austerity? That is the question.

It’s not likely the Troika will agree this early, well before February 28, to start removing austerity measures in exchange for an extension of the rest of the bailout program for another 4-6 months. They will instead push Greece to the 11th hour, deepening pressure on Greek banks in the interim by hinting of no further liquidity assistance, and then declaring on March 1 that no more money will in fact be loaned to Greek banks, just to see how Greece responds.

As another meeting is about to occur by this weekend, February 21-22, rumors are that Greece may agree to a 4-6 month extension of the current bailout program, but not to its austerity terms.  The question of the day therefore is: will the Troika and its finance ministers now meet Greece half way, and get real about dismantling key elements of the austerity measures within the current bailout program? The likely answer: not yet. Perhaps not even before February 28th. But at some point they must, because Syriza and the Greek people have drawn a line in the sand on the issue of austerity.  They have burned the austerity bridge behind them. And it’s not likely they’ll ever go back. Hooray and ‘hats off’ to them for that.

1 comment

  1. Rufus Polson February 21, 2015 9:53 pm 

    Something just occurred to me, a major weapon the Syriza government could potentially use.
    The problem: Since the Euro is a regional currency issued by the European Central Bank, Greece cannot print new Euros to cover its debts (among other limitations).
    But it is widely acknowledged, particularly in leftist circles, that most money creation nowadays is actually done by private banks issuing credit. That has been a big part of the problem.
    Therefore, arguably Syriza could simply nationalize a Greek bank and then create the money to pay off the Eurocrats by lending it to themselves, at 1% interest or no interest at all. I’d love to see the Troika folks’ faces at that point.

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