The growing Greek debt crisis has been top of the news recently following missed IMF payments, a domestic referendum, and tense international negotiations within the European Union. Now that the dust is settling (at least for now), I would like to point out how international relations theory can illuminate why the Greek debt crisis is so hotly debated and why it became so complicated.
The primary base assumption for anyone with an opinion on Greece potentially exiting the Eurozone, or “Grexit,” is under whose purview the problem falls, i.e. is it a domestic issue for Greece, or is an international institutional issue for Europe? Either case can be convincingly made. If one is arguing that this is a predominantly domestic issue, then one might say that Greece has been served a bad hand. Their binding participation in the Euro limited their ability to manipulate their currency, which could have averted some of their fiscal troubles. Pondering whether to leave the EU is a large decision that would greatly affect their lives, and therefore the referendum, albeit poorly executed, was appropriate. Prime Minister Alexis Tsipras turning around and agreeing to a deal that was even less favorable than the one soundly rejected by the Greek people is despicable.
The case that Greece’s troubles are really Europe’s troubles is also fairly persuasive. Other countries have managed to survive fiscal crises while in the EU and rescued themselves with help from other members but without manipulating their currency – Greece’s economy has been sorely mismanaged, and Greece should have known that it could not continue its status quo and expect different results. Greece leaving the EU could be both good – Greece has limited trade with other EU members and is not an avid participant within the institution – but would also be a bad psychological and fiscal blow to the members left behind. The referendum is a farcical play at “democracy” – why should Greece, a country with 11 million people, have a say in a decision that greatly impacts the 492 million other people in the European Union? Or, to be a little more personal, why should Greece get to decide in one fell swoop whether Slovenia, with a population of 2 million people, loses 2.6% of its GDP, or Italy, with a population of 59.83 million people, and Spain, with a population of 46.77 million people, lose approximately 2.4% of their GDP? (Numbers per the Council on Foreign Relations). Perhaps one decision made by one man, i.e. Alexis Tsipras, is also unjust, but at least it does not pretend to be democratic. And if increased austerity measures in Greece truly help the EU as a whole (doubtful, but some scholars do argue this point), shouldn’t Greece finally be told to take its medicine?
Usually conflicting arguments of this nature can be resolved through a practical comparison of the ordered preferences of both parties – the overlapping preferences of the highest position is the expected outcome. An estimated aggregate ordered preference for Greece could be summarized as follows:
- Stay in Eurozone/EU but have some form of debt relief (e.g. delayed payment allowances, debt forgiveness) and no more austerity – as evidenced by the election of Mr. Tsipras in January of this year, who campaigned on this very platform
- Leave the Eurozone/EU
- Stay in the Eurozone/EU and accept more austerity (these last two deduced from the June referendum results)
An estimated aggregate ordered preference of the other members in the Eurozone:
- Stay in the Eurozone/EU and accept more austerity (a hotly debated point among members, but the fact that the deal proposed to Greece included more austerity means this would have to go to the top of the list)
- Stay in the Eurozone/EU with some form of debt relief and/or no more austerity
- Leave the Eurozone/EU (the fact that European leaders are fighting so hard for a deal for Greece to stay instead of letting them go implies this option is especially distasteful to them)
And, because I think many would agree that the human factor of Alexis Tsipras is important here, his ordered preferences are at play as well:
- Stay in Eurozone/EU but have some form of debt relief (e.g. delayed payment allowances, debt forgiveness) and no more austerity
- Stay in the Eurozone/EU and accept more austerity
- Leave the Eurozone/EU and be known as the man who finally crashed the Greek economy
If this mess of preferences does not make ones head spin, I don’t know what will. At the time of this writing, the option of staying with more austerity seems to be winning the day. It is not surprising that Greece did not leave (at least not yet), since it is the last preference for two of the three parties involved, and importantly the parties that could most easily walk away from a technical standpoint. However, it is surprising that the option of staying with no more austerity has not happened, since that is the first preference of two of the parties and the second preference for the third party. Why is the option of staying with austerity winning the day? I would argue that the three parties involved are not equally powerful and the preferences are not equally weighted (i.e. Greece would like option 1, but really does not want either option 2 or 3, but if forced to choose wants option 3 a little bit less than option 2). I say that the three parties do not have equal power since the rest of the Eurozone, especially Germany, has much more power relative to Greece and Tsipras, but that could change with a shift in the Eurozone power dynamics (e.g. more countries push for less austerity and outnumber Germany). Tsipras also has more power than Greece as a whole, by virtue of having more power for immediate decisions which, in practice, should but does not have to align with the preferences of the rest of Greece. The unequally weighted preferences would come into play if Tsipras’s option 3 and Greece’s options 2 and 3 are so distasteful that the Eurozone as a whole is able to leverage this distaste to gain their first ordered preference. Conversely, Tsipras’s tolerance for option 2 in return for not suffering option 3 is good additional leverage, given Tsipras’s position in the power dynamic.
Whether Greece finally stays with more or less austerity remains to be seen, but the battle of the ordered preferences will rage on until the end. From an international relations perspective, it will be interesting to watch.