The Greek crisis being a spectacle of financial warfare between creditors and debtor, rather than an exercise in benign social planning, it’s instructive to think about the difficulties posed by Greek democracy in reaching an agreement, through the jaundiced eyes of the creditors.
Before the Troika allow release of the remaining 7.2bn euros of the second bailout fund, or think about a further agreement involving debt structuring or write-downs, they want something in return.
That something is structural reform. An unfortunate term for a rag-bag of regulations to make Greek welfare, public sector procurement and hiring, minimum wage laws, product markets and tax collection conform to norms in the rest of Europe.
These things are wanted partly for the debatable reason that if they are enacted this will make further Greek bailouts less likely; partly out of a conception of what is fair; and because it is easier to sell the gift of debt forgiveness if the Greeks are made to concede something they would rather not.
All that said, whatever the current Greek government agree to on structural reform, they can’t bind the hands of their successors.
The creditors know that if they offer debt forgiveness, once that is pocketed a future Greek government a few years down the road can simply turn undo their good work. Indeed, they might have to promise to renege to command electoral support.
Few electorates, let alone that of the current traumatised Greek polity, can be counted on to express choices that are much elevated above wanting ones cake and eating it. So one can hardly expect an electorate to encourage Syriza’s successor cabinet to worry about the tricky issue of sustaining reputational equilibria in a bargaining game with the Eurozone creditors. Or to think that the Eurozone creditors would think this.
Hence, there is probably more than simple political symbolism behind a reluctance to write down debt completely. If the burden of debt is relieved by temporary, but adjustable deductions to market interest rates, and/or putting back the date when it has to be paid back, creditors have some hold over governments that follow Syriza and would otherwise have their own political imperatives.
This safeguard, presuming it’s kept, will not be without its consequences.
It no doubt risks a drawing out of the uncertainty around Greek finances, dampening activity. And it will probably entail a prolonging of the political as well as the economic agony, giving energy to the anti-Eurozone, even the anti-capitalist strains in the Greek popular reaction to the calamity they have lived through.
But, of course, with their own political futures to look out for, the creditors can’t help themselves either.