Achim Hurrelmann is an associate professor of political science and director of the Institute of European, Russian and Eurasian Studies at Carleton University.
In his previous career as an academic, Yanis Varoufakis, Greece's finance minister, published books on game theory – an approach to social science that models people's interactions in politics or the economy as "games" in which rational individuals engage in strategic behaviour to maximize their utility, always anticipating their opponents' actions. One of the best known game constellations is the game of chicken, a conflict situation in which a player seeks to exploit his opponent's fear of mutual destruction. Imagine two motorcycles racing towards each other on the centre line of a country highway, and whoever swerves loses. If no one swerves, of course, there will be a crash.
Over the past few months, the Greek government of which Mr. Varoufakis is now a member approached the negotiations over the continuation of their country's loan agreements with the euro zone and the IMF in a way that closely resembled the attitude of players in the chicken constellation. Their calculation was that their negotiating partners would agree to soften austerity measures imposed on Greece – perhaps even forgive some of Greece's debt – if only the Greek government took a sufficiently hard line, threatening to let the situation escalate into an uncontrolled default that would hurt not only Greece but also government budgets and banks in the creditor states.
The economic case made by Greece's left-wing government against a continuation of the existing loan conditions is by no means implausible. Indeed, the austerity measures that Greece had to accept when receiving the euro zone and IMF bailouts – large cuts in wages and pensions, layoffs of thousands of public servants – have deepened the country's recession, and have had enormous social costs. It is also correct that Greece's debt, totalling more than 180 per cent of the country's GDP, is not sustainable in the longer term without restructuring.
Yet irrespective of the merits of its economic arguments, the Greek government of prime minister Alexis Tsipras, with its game-of-chicken mentality, fundamentally misjudged how politics of the euro zone works. It did not give much attention to the fact that its negotiating partners in the euro zone are not disinterested economists who can be won over by good arguments, but national governments, accountable to their own domestic electorates and often fighting for their own political survival.
These include, for instance, the German government facing increasing public hostility to giving further loans, the Spanish and Portuguese governments seeking to avoid the impression that they could have gotten a better deal on their own loan packages, or the Baltic governments which implemented drastic spending cuts in the post-2008 recession. All these governments advocated a continuation of Greek austerity not primarily for ideological reasons, but out of sheer economic and political self interest. In this constellation, whether one likes it or not, fundamental changes to the Greek loan agreement were never to be expected.
Policy making in the EU is all about negotiation, and much of the success of this unwieldy union is explained by everyone's willingness to respect each others legitimate perspectives. The Greek government, however, stuck to its all-or-nothing stance, failed in building alliances, and instead resorted to increasingly angry denunciations of its negotiating partners. Its latest strategic manoeuvre, which ultimately led to break off the talks, was the announcement of a referendum on the proposed austerity conditions.
There is not much to dislike about a referendum, in principle. Even Germany's finance minister Wolfgang Schäuble had previously suggested that it might be prudent to let the Greek population decide on any final deal. However, two aspects of last Friday's referendum announcement annoyed Greece's euro zone partners. First, the referendum proposal came much too late – a mere four days before the expiry of the current agreement. Second, the Greek government announced that it would not use the referendum to build public legitimacy for a negotiated deal, as had been the premise in Mr. Schäuble's proposal, but that it would campaign for a No.
What exactly Mr. Tsipras and Mr. Varoufakis wanted to achieve with the referendum, under these conditions, remains puzzling. Were they hoping a negative referendum result would put further pressure on the euro zone partners to make more concessions? It is unlikely that this would have worked. Did they secretly hope for a Yes, which would have freed the government from its own promises to end austerity? This might have worked domestically, but the creditors would have doubted the government's commitment to actually implementing the agreed measures.
Such speculation is moot, of course, because the very announcement of the referendum prompted the other 18 member states of the euro zone to withdraw its proposals for a loan extension. If the referendum will still take place, as the Greek government has declared, then only as a public relations exercise. The crash has happened – it now looks as if Greece is stumbling towards default. This will be painful for the euro zone as a whole, but the Greek people will suffer most of the consequences. The Greek motorcycle has hit a tractor trailer, as it were.
Is this outcome only the fault of the Greek government? Of course not. Governments of the other euro zone member states deserve blame for a lack of leadership, namely for their unwillingness to debate bold solutions that would have made sense economically, but would have been unpopular domestically. Yet the incompetent negotiating strategies of the Greek government, apparently thinking that it could beat the other Europeans in a game of chicken, have helped create a united front of the other governments – regardless of their ideological differences – and will make it much easier for them to deny their own responsibility for the Greek fiasco.