Thursday, 19 February 2015

Dear Yanis (Varoufakis): act Greek before becoming German

Germany is more than open to discuss anything and everything with the new Greek government about maturity extensions, lowering of interest rates and reduction of the primary budget surplus. As part of a new financial assistance programme.

What Germans are not willing to discuss, and will not discuss, are changes to the existing programme. It's not because they are stubborn, unreasonable and don't get it. It is simply because they don't want to create a precedent. If whenever a new government is elected in an Eurozone country the terms and conditions of existing programmes are up for negotiation the whole Monetary Union construct becomes unmanageable. Agreements at Eurogroup level, once reached, are binding for the countries that agreed to them until expiry date. No matter what government succeeds the one that negotiated the terms of an assistance programme. A new government will have the chance to negotiate new terms once an existing programme expires.

The new Greek government, and surely the prime-minister Alexis Tsipras and finance minister Yanis Varoufakis, being new to EU politics and not "speaking" German have difficulty in understanding this. And by being very honest, and (too) loud, about what they think is right and wrong are wasting their energy and losing a lot of goodwill from their fellow Eurozone counter-parties.

But the solution to the problem is not that difficult: 

Dear Yanis, accept the extension of the current programme without changes and then do what previous Greek governments always did - just implement half of it. We are only talking about a 4 to 6 months period. In the meantime, use all your energy to negotiate the terms and conditions of a new programme that truly reflects the new Greek governments views about Greece's needed structural reforms. So that you and your government can commit to and deliver 100% of it.

You will find out that Germans are much more flexible, reasonable and understanding than they are portrayed to be.And once the Greek government starts to fully deliver on its new programme you will discover that Germans can also be very supportive. Engage with them.

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