Greece failed to make a €1.6 billion payment due to the International Monetary Fund yesterday, making it the first developed country in the world to default to the IMF. The Greek government had asked for a postponement of the payment to permit the country to conduct a referendum on a series of austerity measures demanded by its creditors to extend repayment. After European Union negotiators refused, it was not clear how Greece would respond.
This morning, Greek Prime Minister Alexis Tsipras said the country would “conditionally accept” most proposed austerity measures, but he also indicated that the national referendum on the measures would proceed to a vote on July 5 as scheduled. If voters reject the austerity measures, as Tsipras has campaigned for them to do, Greece’s future in the Eurozone would be cast into doubt.
What do you think? Should the Greek government accept the austerity measures demanded by the International Monetary Fund and the European Union in exchange for the loan restructuring it desires? Should Greece consider exiting the Eurozone? And what would the impacts of an exit be both for Greece and for the European Union more generally?
A tense meeting between President Obama and House Speaker Boehner this morning at the White House.
is defined by Merriam-Webster
as “the art or practice of pushing a dangerous situation or confrontation to the limit of safety especially to force a desired outcome.” It was a common practice during the Cold War standoff between the U.S. and the Soviet Union, when strategists such as Herman Kahn
and Thomas Schelling
mined metaphors like “rocking the boat” and the game of “chicken” to analyze superpower brinkmanship.
The logic of brinkmanship as a bargaining strategy is that by raising the stakes and threatening to let events spiral out of control you can coerce the opposing actor to back down and accept your demands. During the Cuban Missile Crisis President Kennedy’s decision to place a naval “quarantine” around Cuba increased the chances of a naval clash and subsequent escalation between tense, nuclear-armed adversaries. In this crisis, both sides used the very real threat of impending doom to wring concessions from the other.
Today we are witnessing a good example of brinkmanship in the standoff between President Obama and Congressional Republicans over raising the debt ceiling. The August 2nd deadline is looming for the U.S. to raise the ceiling or risk defaulting on its obligations–not quite as bad an outcome as nuclear holocaust, but bad enough that many analysts are using the terms “apocalypse” and “armageddon” to describe the economic consequences of a default. For analyses of the consequences of a default for the U.S. and the global economy see here, here, and here. Summing up the concerns, a senior economist at Wells Fargo is quoted in a recent Huffington Post article as saying: “It would be an earth-shattering event. It’s taken as a given that U.S. Treasuries are a safe asset. Once you question that assumption, it shakes the foundations of global finance, and the way it’s been established over the last 50 years.” Yet despite these dangers, President Obama walked out of talks last week and House Speaker John Boehner broke off talks last night, raising the heat and signaling that they were willing to court economic disaster if the other side didn’t budge. Some analysts believe that the willingness of some Congressional Republicans to accept the prospect of no deal by August 2nd gives them the upper hand in negotiations, and analysts such as Thomas Schelling would agree. The problem with brinkmanship, however, is that it requires increasing the likelihood of catastrophe, and if that catastrophe happens both sides have lost.
What do you think? Who is playing the game of brinkmanship better in this standoff? How will it end? Are both sides acting irresponsibly by raising the risks of economic disaster, or is one side more to blame for holding the economy hostage to extract self-interested concessions?
Most of the headlines this week has centered on the auto rescue package. The most recent news is that the Treasury Department is working to put together a rescue package for Detroit automakers after Senate Republicans blocked the Congressional effort last week. The Canadian government is offering $3.4 billion in aid to struggling car makers on the condition that the U.S. government extend assistance as well. Foreign car manufacturers are that the U.S. government should extend aid to American manufacturers in order to prevent knock-on effects on their own businesses.
Here’s five other important stories you might have missed this week:
1. The government of Ecuador announced it would not meet the $30.6 million payment on the country’s foreign debt, despite holding $5.65 billion in cash reserves. Rafael Correa, Ecuador’s leftist president, said, “I gave the order not to pay the interest and to go into default. We know very well who we are up against—real monsters.” The international debt-forgiveness campaign Jubilee celebrated the decision, arguing that requiring countries to repay illegitimate debt forces them to cut social spending. As a result of the default, the cost of barrowing money by the Ecuadorian government and businesses will likely increase.
2. The situation in Zimbabwe continues to deteriorate. Once celebrated as a potential model for the rest of Africa to emulate, Zimbabwe’s social, political, and economic collapse continues. The country currently faces an annual inflation rate of 231 million percent, and a cholera outbreak which has resulted in the deaths of more than 800 people this month now threatens to spread into other states in the region, forcing South Africa to declare a state of emergency and close the border.
3. European leaders committed themselves to a 20 percent reduction in greenhouse gas emission by 2020. The announcement, intended to reduce the danger of global climate change, falls short of the 25-40 percent reductions required of developed countries according to scientific assessments. However, the EU has already announced its intention to pursue bigger reductions if the United States and other developed countries come on board.
4. Ireland confirmed it would move forward with a second referendum on the Lisbon Treaty after securing concessions from the European Union. The Lisbon Treaty, which was defeated by Irish voters in June, moves European integration forward. Ireland is the only country which required a popular referendum on the Treaty. The text of the Treaty has been amended to assure that Ireland’s military neutrality would be guaranteed, and its abortion laws and national tax system would not be affected.
5. The South Korean government announced its intention to expand cooperation with China and Japan in coordinating economic policy to address the spreading global financial crisis. The three countries account for 75 percent of the region’s economy and two-thirds of its trade. The deal would expand a currency swap agreement intended to stabilize the three countries’ currencies, and could lead to further coordination of economic policy.
Posted in Almond Comparative Politics Today 9/e, Almond Comparative Politics Today: ATF 5/e, Art/Jervis International Politics 9/e, Danziger Understanding the Political World 9/e, Draper The Good Society, Goldstein International Relations 8/e, Goldstein International Relations Brief 4/e, Nye Understanding International Conflicts 7/e, Roskin Countries and Concepts 10/e, Roskin IR 7/e, Viotti International Relations and World Politics 4/e
Tagged auto rescue, Canada, China, cholera, climate change, currency swap, debt, default, economic stabilization, Ecuador, European Union, Five Stories You Might Have Missed, Ireland, Japan, Kyoto Protocol, Lisbon Treaty, South Africa, South Korea, United States, Zimbabwe