Thursday, November 03, 2011

Another eurolesson in brinksmanship

Last week, I noted a rather painful contrast between Angela Merkel's brinksmanship (whatever you think of her policymaking) and Obama's lack thereof, lamenting that we couldn't substitute "Obama" and "Boehner" in this Times headline below:
Merkel Called Bankers’ Bluff to Win Europe a Debt Plan
Today, add to the roster of EuroRussian Roulette-meisters Greek Prime Minister George Papandreou, who sent the Eurozone into panic mode with his call for a referendum on the EU's latest rescue plan -- apparently to scare his domestic opposition into line.  From the FT's liveblog:

Over in Athens, the narrative of today’s developments is becoming clearer. According to the prime minister’s comments to his cabinet, the key turning point appears to have been when Antonis Samaras, the conservative opposition leader, said today that he would be willing to back the new bail-out agreement in order to ensure Greece stays in the euro. The conservatives opposed Greece’s previous bail-out on the grounds that harsh austerity would deepen the country’s recession and leave banks without liquidity to fund investment. Kerin Hope has more from the text of Papandreou’s address to minister at their emergency meeting earlier [FT emphasis]:
“There is no need for a referendum following the conservative opposition’s switch of its position and willingness to back the October 26 package.”
“We must hail the fact that [the main opposition party] New Democracy will vote for the new bail-out agreement.”
“We had a dilemma: consensus or a referendum … Failure to back the package would mean the beginning of our departure from the euro. But if we have consensus, then we don’t need a referendum.”
 And a bit later from the FT, more detail [my emphasis]:
  • Meanwhile, it emerges that the plan is to hold a referendum not merely on the bail-out but on Greece’s very membership of the single currency
  • Thursday dawns with news that Evangelos Venizelos, the Greek finance minister, is no fan of the referendum idea
  • Zero hour in Athens as Papandreou, on the brink of resignation, summons his ministers
  • There is much confusion in the markets
  • As the enormity of what might befall Greece should it not receive any more rescue cash and, perhaps, be flung from the euro, becomes clearer, the opposition conservatives reverse their opposition to the bail-out

One measure of Papandreou's sang froid: he put the FTSEurofirst 300 Index into a 5.5% dive over two days while bringing the prospect of Greek expulsion from the EU home to his opposition. A comparable drop rewarded Obama for caving to the GOP in the week following the August 1 debt deal.

Of course, the analogies between Merkel's and Papandreou's crisis negotiations and Obama's are limited on many planes, as are all analogies between disparate events. But I think the center holds, per this exchange
last week with reader MinneapolisPipe:

MinneapolisPipe said...
There is a slight distinction here, however. Even though the European bankers were dumb enough to get in bed with the Greek sovereign debt, Merkel was still dealing with somewhat rational actors. In addition, her position held better leverage. The bankers could've taken a 100% loss or a 50% loss. Much easier to call their bluff with those options (they're European moneymen, not Tea Partiers misquoting Thomas Jefferson). In contract, Obama was dealing with a rebellious and some would say a downright crazy group of House Republicans (a group that neither Cantor nor Boehner could truly control). Wrecking the US economy would have been the end of the Obama presidency. Rightly or wrongly, Obama made a tactical retreat to live to fight another day (perhaps anticipating a future decline of the Tea Party hysteria). On the surface level, the Merkel/Obama contrast is easy to make. But analyzing the players they were negotiating with reveals dissimilar scenarios. Yet smarmy fantasists like Drew Westen (who you rightly eviscerated) would eat this up. At the moment, no one really knows whether Obama was right or wrong in dealing with it the way he did. We can only know that in hindsight if he goes on to win another term and lives to enact other parts of his agenda. PS-- The Europe deal is far from over. While the Greek debt has been somewhat addressed, the fiasco that is the Italian government is up next! ...And now the Europeans are begging the Chinese for money (
ASP said...
Hi Minneapolis: I also thought of the various ways the analogy is limited but decided that it held at its core. I think Obama should have had two absolute negotiating conditions: no debt deal end-stopped by the debt ceiling deadline, and no debt deal without new revenues. His leverage was the 14th amendment -- if it was good enough for Bill Clinton, who said he'd use it if he were in O's place, it should have been good enough for Obama. Properly set up that is, with earlier insistence on a clean debt ceiling bill followed by the kind of gradual, indirect introduction of the 14th amendment option that it did in fact get, first from Constitutional scholars and then from Dem operatives and congressmen. Merkel could have been destroyed by failure to get a deal, too, and triggered just as big a financial catastrophe. But she didn't blink.

At bottom, I think Obama was dead wrong when he justified acceding to political hostage-taking last December, in the wake of his tax/stimulus deal:
TODD: If I may follow, aren’t you telegraphing, though, a negotiating strategy of how the Republicans can beat you in negotiations all the way through the next year because they can just stick to their guns, stay united, be unwilling to budge -- to use your words -- and force you to capitulate?

THE PRESIDENT: I don’t think so. And the reason is because this is a very unique circumstance. This is a situation in which tens of millions of people would be directly damaged and immediately damaged, and at a time when the economy is just about to recover.
And I hope he's learned as much.

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