Greece’s Syriza versus ECB chief Mario Draghi: it’s game on

Stakes could not be higher for crunch EU talks – but common ground appears elusive

The smart money is clearly on a negotiated settlement, but only after a good bit of sabre-rattling. Photograph: Getty Images

The smart money is clearly on a negotiated settlement, but only after a good bit of sabre-rattling. Photograph: Getty Images

 

It is said that the reason universities are such snake pits of political intrigue is that the stakes involved in most academic arguments are trivial. Unsurprisingly, professors endlessly argue over who said this first.

Greece’s new finance minister is no doubt well versed in all of this, particularly given his chosen field: game theory. He seems well equipped to lead a charm offensive both in the media and in the corridors of European power.

Indeed, he achieved a modicum of success in the media and has many new best friends across Europe’s populist political parties.

Markets have accepted that this is all just a negotiation and the inevitable deal will involve a restructuring of Greek debt to reduce the repayment burden without any outright cancellation of past borrowings.

Syriza will also be allowed to enact some – but by no means all – of their promises to row back on previous acts of austerity. As Martin Wolf has said, if the euro is the second biggest mistake ever made by the EU, the biggest would be to break it up.

Sabre rattling

In Mario Draghi, at least, I suspect he may have found a decent opponent: after MIT and Harvard, Draghi successfully negotiated a career at Goldman Sachs, Italian politics and the World Bank. He also knows a thing or two about games – and not just in an academic context. I have a hunch this is not going to be a fair fight, which suggests where the outcome might lie.

Syriza has suggested that it has some affection for Vladimir Putin. Some argue that this was just a negotiating tactic, albeit one as clumsy as the references to Nazi Germany.

By stark contrast, others have drawn comfort from hints that the new Greek government is passionately pro-Europe and all things EU (except for the obvious of course). Somebody is clearly playing games – not particularly subtle ones.

The focus on the shape of any deal between the EU and Syriza is understandable. But, in one sense, it misses an important point. In the wake of the euro crisis it is now widely accepted that the single currency still has many fault lines running through it.

And the fundamental repairs that will make any difference all fall under the heading “further integration”.

If political union is still a distant dream, more steps along the road towards a proper fiscal union are the only thing that will give any long term stability to the euro.

The recent baby steps in the form of a quasi banking union and other stabilisation measures should be seen in this light. We used to call it economic and monetary union for good reason.

Economic union is necessary for the long-term survival of the euro. We know how hard that is going to be to achieve. Such a union requires common ground in terms of belief about how economies work and the proper conduct of monetary and fiscal policies.

Unless this is just a gigantic game, it seems there is no commonality of economic viewpoint between Syriza and the people who matter in Frankfurt and Brussels. None at all.There is no chance of deeper economic union between Greece and the rest of the euro area.

Further economic integration is difficult but necessary. But it will be impossible to achieve between countries and institutions that have wildly opposing economic beliefs.

If Syriza really does believe what it says (admittedly a big “if “, given the nature of the game) then it makes no sense at all for it also to profess affection for Europe and the single currency.

If we take it at its word, logic dictates that Greece should exit the single currency (if not the EU itself) at the earliest opportunity.

Unlike with academic debates, the stakes couldn’t be higher, as are the risks of calamity.