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Statesmanship & Brinkmanship

Let’s dig out an old story to provide some context to some of the current Eurozone dynamics: In a tiny village in the North of Europe (or was it in the South?), an anxious man lies in his bed in the middle of the night, unable to find any sleep. His wife, almost asleep, notices that he is wide awake and asks him what is going on. He explains to her that he owes a lot of money to their neighbor across the street. The wife gets up, walks to the balcony, opens the window and calls the neighbor’s name. A couple of minutes later, the neighbor, barely awake, opens the window and asks the lady what she could possibly want at this unsocial hour. She shouts: “My husband owes you a lot of money”. “Yes, that is true” confirms the neighbor. “Well, he can’t pay you back”. She quietly closes the window, gets back to bet, and softly tells her husband: “Now, you see, he is the one who won’t be able to sleep tonight.” And they both fall asleep.

Greece has been consistently playing that debtor card vis-à-vis its creditors since 2011. But the situation has changed. Four years ago, a Greek default would have almost certainly led to an explosion of the Eurozone and to an economic depression through the freezing of the banking system since directly exposed to Greek government bonds and other governments at risk of being victim of contagion. Whilst the EU still has much to lose, the burden of the potential loss is more equally shared. In other words, a point has been reached where neither side is sleeping well at night.

As Bruce Henderson wrote in “Brinkmanship in Business“ (Harvard Business Review 1967—cold war era), in such a context, “the negotiator’s skill likes in being as arbitrary as necessary to obtain the best possible compromise without actually destroying the basis for voluntary mutual cooperation or self-restraint.” Three rules are stipulated in the same article:

  1. Be sure that your rival is aware of the gain if he cooperates and the loss if he does not

  2. Avoid any action which will arouse his emotions since it is essential that he behaves in a reasonable fashion. Indeed, a rational party will cooperate to the extent that it believes it benefits from an agreement, even if marginally and less so than its opponent; In other words, a coldly logical negotiator is at a great disadvantage

  3. Convince your opponent that you are emotionally committed to what you consider to be a totally reasonable position

When two parties apply the same brinkmanship negotiation tactics, breakdowns in talks, like the recent ones between Greece and its creditors, are simply inevitable and thus an integral part of negotiation processes. Eventually, one party will need to make more concessions than the other.

Getting a sense of the top-level negotiation dynamics through the news has its obvious limitations. From a distance, it seems like Greece has been until recently a more effective negotiator than its creditors in the sense that it has been behaving arbitrarily. Lately, however, emotions have been running high on the creditors’ side. Is that the result of tactical mistakes by Greece who failed to keep the other side cool, or some theatrics amongst creditors as they become savvier at implementing the brinkmanship rules?

The answer probably does not matter much. What does is that an agreement (or some form of it) should and will eventually be reached. This would explain why everyone else in our little village is still sleeping tight.

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