Hugo Dixon: Greek ultimatum is a bad idea

June 1, 2015

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

Should Greece’s creditors give the country an ultimatum? No. Not only is such a thing probably unnecessary, it could also play into the hands of Greek nationalists who would argue that foreigners were again bullying Athens. Besides, negotiations between Greece and its creditors are making progress, albeit still too slowly. Dictating to the Greeks would make any bust-up between the two sides particularly bitter.

Some take the opposing view. The Wall Street Journal’s Simon Nixon, for example, argued last week that talks between Athens and its lenders were going nowhere; so the euro zone and International Monetary Fund should present Greece with a take-it-or-leave-it offer, set a deadline, and say they would cut off its banks if it didn’t agree.

Even if such tactics made Athens come to heel in the short run, the government would have no ownership of the programme meaning there could be little confidence that it would implement it properly. Delivering on what is agreed is even more important than reaching a deal in the first place.

There is, admittedly, no guarantee that Greece will reach an agreement with its creditors. Both sides will have to surrender more ground and there is little time before Athens’ cash finally runs out.

The creditors’ most important concession so far has been that they are no longer insisting on Greece achieving an unrealistic 3 percent primary fiscal surplus this year and seem prepared for it to target around half that. Meanwhile, the radical left government, led by Alexis Tsipras, has agreed to push up value-added tax and acknowledged that privatisation will proceed in some form.

The creditors clearly need to continue to explain what their bottom lines are on the remaining issues: pension and labour reform. They can even suggest solutions.

The euro zone and IMF can also spell out the dire consequences for the Greek people of default – namely that the European Central Bank will have no choice but to cut off liquidity to its banks, triggering a chain reaction that will lead to much misery and probably Athens bringing back the drachma.

But this is different from the lenders writing a new set of reforms themselves and giving it to Tsipras as a take-it-or-leave-it offer.

One of the reasons Greece has failed so miserably in the past few years is that the people never believed in the reforms they were being forced to adopt. Like a patient who takes the first few doses of an antibiotic and throws the rest in the bin, Greece never finished the treatment with the result that the infection was not defeated.

A dislike of external interference is not just a phenomenon of the current crisis. The country has long suffered from being forced to do things it doesn’t want. The people have kicked back by disobeying rules and outsmarting the system.

Some trace this mentality back to the centuries under Ottoman subjugation. If laws and taxes are imposed from abroad, it can seem clever to avoid them. Greece will never be a successful modern country until it makes rules for itself and then sticks to them. This is even more important than balancing budgets and liberalising markets.

Germany, Athens’ most important creditor, should understand this. After all, Immanuel Kant, perhaps its greatest philosopher, made a critical distinction between heteronomy and autonomy. If we are heteronomous and follow laws made by others, Kant wrote, we are ultimately slaves to our passions. It is only if we subject ourselves to our own rational laws that we are free.

Greece’s creditors are sometimes exasperated that Athens wastes time and cannot come up with detailed and bankable proposals of its own. But they must resist the temptation to interfere with the country’s autonomy. It is easy to see how doing so would fit into the script told by Greek nationalists, both on the right and left of the political spectrum, that foreigners are always dictating to it. In the event of a rupture, the creditors don’t want to be caught putting a gun to Tsipras’ head. They should instead want him to decide what he thinks is the best out of a set of admittedly unpalatable choices.

More likely, there will soon be a short-term deal to stop Greece’s imminent bankruptcy. But that will be only the first step in a recovery. Not only will Athens have to deliver on its promises, it will also need in a few months to reach a new multi-year bailout agreement, under which its creditors will lend it a further 50 billion euros or more and give it some relief on its mountainous debts. In return, Tsipras will have to agree more reforms and implement them over several years.

It is hard to be optimistic that Greece will be able to deliver over such a sustained period, particularly given the hostility to reform among numerous parliamentarians in Syriza, Tsipras’ party. Still, there’s a chance that the prime minister may secure a fresh mandate for any deal he cuts, ideally by holding a new election, and that the people would then have ownership of the programme.

By contrast, the likelihood of a successful long-term recovery is pretty small if Greece’s creditors undermine its autonomy by presenting it with a take-it-or-leave-it offer.

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