Monthly Archives: July 2015

Did Tsipras really make a mistake? Dusting off some of my old stuff

In the course of current events, many political experts (see here and here) have wondered why the Greek prime minister would call a referendum at all. Too clearly the odds were biased against him. Too obvious it became that the outcome is even worse than without the referendum. The damage to Greece and his party was big.

I don’t deny this, but looking at the unfolding of recent events I wonder whether Tsipras did not just try to gamble for resurrection. When, in game-theoretic parlance, players face the wall they take recurrence to pretty desperate means. This is the way how I interpret former German chancellor Gerhard Schroeder’s Nixon-goes to China labour market reforms (the so-called Hartz reforms). Back then Gerhard Schroeder faced almost certain electoral doom, and you can take pretty desperate means trying to get back into the game.

Perhaps Tsipras called for a referendum with a certain self-delusion of strength (it is always amazing what level of Kindergarten antics both the German and Greek sides have reached), but in desperate times we are indeed. In an older paper I tried to show that the idea of a referendum is often to create additional uncertainty to leverage gains. The case I analysed back then was why many Polish voters voted ‘no’ in the accession-to-EU referendum in 2004. Given the strategic constellation this behaviour was fascinating: It was pretty clear that the yes camp had an overwhelming relative majority. But it was also more than uncertain, whether the yes camp would be getting the 50% of voter turnout to make the referendum valid. (By the way, this is the voter paradox to the power of two: not only did voters behave irrationally by not being lazy and voting, they seemingly harmed their cause by helping the yes-camp to win.) Hence, the real battle was whether or not to boycott the referendum or not. I think, those voters who went to the ballot and said no meant something else: a ‘yes, but’. They wanted to access the EU, but under better terms of accession than the ones the government at the time had been negotiating. And indeed, Brussels came to aid and helped the Polish government pass the threshold.

Looking at a survey fielded just a day before the referendum shows what Greeks associated with voting ‘no’. It is clear that Greek naysayers did not really want to leave the Eurozone, but that they want to send a signal to politicians. Effectively a ‘no’, as in the Polish case, is more like a ‘yes, but’, saying yes to debt renegotiation, but with better conditions for the Greeks. This is actually consistent with an increasing scientific literature arguing that voting is much more than just deciding who governs. The loosing camp in any election or referendum can gain respect by sending strong signals. In this sense, I am also not sure that the referendum did not have an impact. It tried to split the creditors, and raise public awareness internationally. So far, it seemingly failed to divide the creditor side, but in terms of international reputation, Germany could well end up being the true looser of the recent round of debt renegotiations (#ThisIsACoup).

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Mexican tomatoes and Greek debt

Since everybody talks about debt these days, so will I. Rich industrialized countries owe a lot of money to developing countries, as people from Rafael Correa (the Ecuadorian president) to Eduardo Galeano (late Uruguayan author) pointed out. Let’s make an example. The ancestors of nowadays Mexicans invented and developed the tomato (and, by the way, corn, all kinds of peppers, vanilla etc.). For some apparently bureaucratic reason, developed countries have forgotten to pay standard royalties for licenses on agricultural crops. If we calculate a very lenient 1% of the value of annual sales, forget about penalties for late payment, and assume that the US population consumes a constant number of tomatoes per year (probably not true, but makes life easier), it is easy to do the maths. We need to introduce a discount factor for future earning/ or forgotten past payments, know roughly the evolution of the US population (tips to Angus Maddison’s data), and we can calculate the net outstanding royalty fees from tomato sales alone: 158,428,275,151 USD. And that’s just tomatoes, and that’s just for the US sales. The numbers are, of course, pseudo exact, but I think you get the point. Greece should better start calculating outstanding debt from feta cheese (and whatever else they invented) produced outside Greece the last 200 years. That should cover the kind of ridiculous sums we are currently talking about.

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