Puzzled out? The unsurprising outcomes of the Greek bailout negotiations

Abstract

While to date the Eurozone debt crisis is one of the most important and consequential events in world politics of the twenty-first century, the actions taken by states to negotiate a cooperative resolution do not seem particularly puzzling. In this article, we employ the analytic explanation approach to process tracing to test whether the most protracted and high-profile casenegotiations between creditors led by Germany, and Greece as debtor stateindeed validate three central hypotheses of basic cooperation theory regarding the sources of bargaining strength. We conclude that while bargaining leverage did emerge primarily from the ability to withstand non-agreement, the weaker Greece was able to achieve marginal concessions reflecting terms that departed from Germany's initial win-set. This leverage stemmed however not from a threat based on domestic political constraints, but from the realization that Greece's structural economic weakness rendered the strictest austerity measures untenable. The policy implication is that the credibility of the weaker side's negotiating signal arose not from domestic politics, but the impartial assessments of international technocrats and private rating agencies.

The Effects of the Economic Adjustment Programmes for Greece: A Quasi-Experimental Approach

“…The challenge for the European governments was to stabilise the economic situation by avoiding the non-payment of public debt, the bankruptcy of the banking system, and the collapse of the Euro [19]. All of these in a context of asymmetrical interdependence.…”

“…Between December 2009 and January 2010, the main rating agencies downgraded the credit rating of Greece, and interests on Greek bonds increased significantly. The Greek government announced austerity and fiscal consolidation measures [19]. However, these did not have enough credibility, and the cost of financing the Greek debt continued to increase.…”

“…With this idea, the new government started negotiating a financial assistance programme to replace the previous one [19]. By the end of 2014, the Greek debt was reaching 178.9% of GDP, with a public deficit of 3.6%.…”

Analyzing Greece 2010 Memorandum’s Impact on Macroeconomic and Financial Figures through FCM

“…Upon Greece's creditworthiness reduction after 2009, Greek bond interest prices skyrocketed, prompting the administration to announce austerity and deficit reduction policies (Lim et al 2018). A mistrust of such actions, combined with the heavy price of funding the Greek economy, resulted in a growth in state debt.…”