Negotiation processes: EU negotiations toward the Greek bailout in the context of the boundaries of the EU legal framework
This paper examines the negotiations that took place in the European Union (EU) toward the joint financial program for Greece, also known as “the Greek bailout.” The paper analyses what type of negotiation behavior was enacted by various actors involved and the boundaries of the institutional and legal framework in which these negotiations took place. The paper argues that bargaining behavior was expected due to the type of policies discussed and the high politicization of the problem, but that nonetheless problem-solving behavior was prevalent. The actors of the euro zone all wanted to solve the problem in order to prevent damage to the shared euro currency. The framework within which these negotiations took place was not sufficient for the EU to deal with the sovereign defaults of several countries facing financial issues. Subsequently, due to euro zone countries’ fears of the spill-over effect, the EU created a new mechanism for future cases: the European Financial Stabilization Mechanism (EFSM) and the European Financial Stability Facility (EFSF) (Sibert 2010a).
Global governance is increasingly dealing with novel issues that test the boundaries of existing legal and institutional frameworks. Thus, negotiations regarding these issues are affected too. In this paper, I address the negotiations that took place in the European Union (EU) toward the joint financial program for Greece, also known as “the Greek Bailout.” Specifically, I seek to examine what type of negotiation behavior was enacted by various actors and the boundaries of the framework in which these negotiations took place. The Greek bailout has been seen as a unique case in the history of the EU. Never before had a country, a member of the euro zone, been bailed out. The fact that the possibility of a bailout has not been addressed in any previous treaty has been an additional difficulty that had to be tackled by the negotiators. Addressing the legal framework and its limitations is critical to establishing a context within which scholars can analyze negotiations (èlgstrom & Jšnsson 2000).
EU member states must comply with several rules of fiscal prudence: their deficit must be lower than three percent of total GDP and public debt must be lower than sixty percent of GDP (Lisbon Treaty). However, a number of countries in the EU, such as Portugal, Ireland, Greece, and Spain (PIGS), have not complied with these rules. Excess spending by these governments has resulted in unsustainable budget deficits and subsequently, a sovereign debt crisis in the so-called PIGS (Sibert 2010b). Although the Maastricht Treaty has enacted measures to prevent sovereign defaults, such as monitoring economic policies and carrying out overall assessments of development in each member state (Maastricht Treaty, article 103, nr 3) by the Council of the European Union, these benchmarks failed to prevent the debt crisis.
A flaw in the Treaty’s reasoning is that the member states themselves have to provide the information for the assessments. Greece, for example, was accused of altering its fiscal reports in order to conceal the country’s high deficits and debt: 110 percent debt and 11 percent deficit (Gros & Mayer 2010). In January 2010, the EU decided to address Greece’s financial problems. As reported, EU officials aimed to prevent the spillover of the Greek crisis to other countries of the euro zone (Reuters 2010, April 30). The EU member states needed to take action, so negotiations began during both formal and informal meetings between various actors. The outcome of these negotiations is well-known: Greece received an aid package of 110 billion euro with some conditions.. How did the euro zone member states work toward the joint financial support program? What types of negotiations were present? Was the EU’s institutional and legal framework regarding financial and monetary matters sufficient in addressing Greece’s problem? Finally, what were the boundaries of this framework?
In this paper, I will analyze the institutional and legal framework within which the negotiations took place as well as the type of negotiations behavior employed by the various actors. I will argue that bargaining behavior was expected due to the high politicization of the problem, but that nonetheless, problem-solving behavior was most common. Euro zone actors wanted to solve the problem to prevent damage to the shared euro currency. The framework within which these negotiations took place was not sufficient for the EU to deal with the sovereign defaults of several countries facing financial issues. Subsequently, due to euro zone countries’ fears of the spillover effect, the EU created a new mechanism for future cases: the European Financial Stabilization Mechanism (EFSM) and the European Financial Stability Facility (EFSF) (Sibert 2010a).
First, this paper explores the importance of negotiations and looks at the role of negotiations in the EU. Next, the paper reviews the literature by unfolding three types of negotiation behavior: problem-solving, bargaining and communicative action. Problem solving and bargaining are analyzed together, since an analysis driven by emphasizing the characteristics of the two will be more insightful and constructive in determining the advantages of each. The following section provides an overview of the three negotiation behaviors and observations regarding negotiations in the EU specifically. Thereafter the methodology of the paper is explained, followed by an explanation of the framework within which the negotiations in the Spring of 2010 occurred. The paper ends with a discussion of the consequences of Greece’s bailout for the institutional and legal framework.
THE IMPORTANCE OF NEGOTIATIONS
Realists in International Relations view big state powers as the main actors in global governance and believe these large powers achieve global stability through coercion (Drezner 2002: 5). For realists, negotiations do not matter (Drezner 2002: 28). However, the very fact the negotiations are taking place is the proof that they do matter (Singh 2008: 67). Negotiation has been defined as “a process in which explicit proposals are put forward ostensibly for the purpose of reaching agreement on an exchange or on the realization of a common interest where conflicting interests are present” (IklŽ 1964: 3-4). Negotiations are characterized by interdependence and by the presence of both common and conflicting interests. A more recent definition is provided by Singh, who defines international negotiations as “diplomatic interactions featuring sets of collective problem-solving and individualized posturing among a diverse array of its players.” (2008: 1). Negotiations have been extensively studied and classified in many different ways, such as value claiming versus value creating (Lax and Sebenius 1986); distributive versus integrative bargaining (Walton and McKersie 1965); bargaining versus problem-solving (Hopmann 1995); strategic action versus communicative action (Niemann 2004); or bargaining versus arguing (Risse 2000). All of these classifications are based on ideal types; negotiators are not constrained to one tactic, but can use a mix of tactics that belong to different categories.
Negotiation theory, which emerged in the 1970s, addresses which strategies actors use in negotiations; which factors enhance (or reduce) the bargaining power of actors; the conditions under which negotiations are likely to be efficient; whether the preferences of actors change as they enter negotiations; the role of discourse and arguments used in negotiations; the impact of long versus short time horizons; and what role mediators can play in facilitating compromises (Fisher and Ury 1981; Hopmann 1996; Odell 2000; Raiffa 1982; Zartman 1978). Most of the scholarly work is U.S.-based and focuses on U.S.-Soviet relationships (DŸr et al. 2010). More recently, scholarly work has also focused on negotiation theory and the EU (see Niemann 2004, DŸr and Mateo 2010, Tallberg 2010).
PROBLEM-SOLVING AND BARGAINING
The two paradigms that currently dominate negotiation theory are bargaining and problem-solving (Hopmann 1995, Niemann 2006, èlgstrom & Jšnsson 2000). At the basic level, the difference between bargaining and problem solving is a distinction between self-interest and common interest (èlgstrom & Jšnsson 2000).
The bargaining, strongly influenced by game theory, is characterized by zero-sum games. In this model, actors seek to maximize their self-interests and use threats and promises to achieve their interests. Parties that engage in bargaining will only accept an agreement that increases their interests relative to no agreement (Niemann 2006: 469).
Follet developed the foundations for the problem-solving paradigm (1924, 1942) and advocated a creative, constructive and integrative approach toward conflict resolution (Niemann 2010: 469). Problem solving, contrary to bargaining, is characterized by non-zero-sum games in which actors aim for solutions that satisfy the interests of different negotiation parties. Here, the focus is on mutual, absolute benefits. Preconditions of problem solving are an orientation toward common goals, values and norms. When people work together for a long time, shared norms are created and cooperative behavior may be established (èlgstrom & Jšnsson 2000: 687). Problem solving produces greater flexibility and more efficient and durable agreements than does bargaining (Hopmann 1995).
Furthermore, bargaining is often associated with conflict and cooperative problem solving , but this is not necessarily the case. All negotiations include both conflictual and cooperative aspects: “Without common interests there is nothing to negotiate for, without conflict nothing to negotiate about” (IklŽ 1964: 2).
èlgstrom & Jšnsson (2000: 690) differentiate between five contextual factors to detect what type of negotiation is more likely to encounter a certain situation: (1) decision-making rule, (2) level of politicization, (3) stage in the decision-making process, (4) type of policy, and (5) network characteristics. The five factors are extracted from the literature on EU decision-making and might not be appropriate for all negotiations (èlgstrom & Jšnsson 2000: 690). However, because the case in this article is about negotiations in the EU context, this focus is appropriate.
In summary, the decision-making rule helps to determine which negotiation behavior player’s use. However, the relationship between voting rules and negotiation approaches is complex. èlgstrom & Jšnsson (2000: 690-691) argue that voting unanimously is more attuned to cooperation, but is driven by self-interest, and thus seems to produce a bargaining approach. Majority voting tends to create a more confrontational climate. Moreover, none of the decision rules per se can be linked to problem solving.
The level of politicization is determined by the engagement of public opinion or influential interests. An issue may rapidly move from being handled by bureaucrats to the agenda of top politicians when higher levels of public opinion or influential interests are involved. For example, day-to-day decisions are occupied more by policy experts and are rather extracted from public opinion and influential interests. Consequently, these experts work more in coordination and cooperation, which is related to the problem-solving approach (èlgstrom & Jšnsson 2000: 692).
The stage in the decision-making process determines the negotiation style. Early stages are characterized by uncertainty and unpredictability and are thus an ideal stage for problem-solving to take place because actors are required to learn about each other’s interests and have to share information and cooperate (èlgstrom & Jšnsson 2000: 692-693). The early decision-making phase can be associated more with a bargaining style used by state representatives.
Four different types of policy-making in the EU can be distinguished: constituent, in which the basic rules and principles of the system itself are under consideration; redistributive, in which the transfer of financial resources from some actors to others is involved; distributive, in which EU funds are allocated within sectors; and regulatory, in which member states agree to adopt common regulations on the activities of public and private actors (èlgstrom & Jšnsson 2000: 693-695, and see Wallace 1996). Because of the importance of the issues, constituent policy-making is expected to have tough bargaining. Redistributive issues are also expected to lead to bargaining. Distributive and regulatory issues are associated with problem-solving behavior.
The last factor, network characteristics, can be summarized as follows: the higher the density of the network and the more informal the network the greater the probability of problem solving rather than bargaining (èlgstrom & Jšnsson 2000: 695-696).
Whether problem-solving or bargaining strategies are the most apparent in the EU remains uncertain. èlgstrom and Jšnsson argue that both aspects of negotiation are apparent in the EU decision-making process and the preferred method is contextually determined (2000: 690). Accordingly, day-to-day negotiations in the early stages of a negotiation process are to a large extent problem-solving in nature (èlgstrom & Jšnsson 2000: 689 and 692) and the actual decision-making phase would be associated more with a bargaining style (èlgstrom & Jšnsson 2000: 693). Hopmann (1995), however, argues that bargaining behavior is more frequently employed in international negotiations than problem solving. The reason for this is a self-fulfilling prophesy: since most diplomats were trained during the period when the realist paradigm was dominant in the field of international negotiations, it is likely that these diplomats construct their image of negotiations in terms of bargaining which, therefore, leads to the prevalence of bargaining behavior (Hopmann 1995: 46). In addition, he argues that research methods utilized to study negotiations tend to emphasize bargaining variables and the more subtle problem-solving behaviors are harder to detect. However, Hopmann is convinced that the prevalence of bargaining does not imply that this is the best method. According to him, most research tends to reveal that problem solving produces greater flexibility and more frequent, efficient, equitable, and durable agreements than bargaining.
Knowing the characteristics upon which problem-solving and bargaining can be recognized and what their importance is in international negotiations, it is time to look to Niemann’s concept of genuine debate, which he sees as a possibility to complement bargaining and problem-solving.
GENUINE DEBATE AND COMMUNICATIVE ACTION
Niemann (2006: 468) argues that bargaining and problem solving do not capture some important aspects of negotiating behavior. He offers a supplement to these two types of negotiation by proposing the idea of genuine debate. Genuine debate, based on Habermas’s communicative action, is characterized by reason, debate, arguing, discussion, deliberation, and persuasion (all in a non-strategic manner) and by shared standards of truth, rightness, and sincerity.
Niemann (2006: 472-473) has specified conditions for genuine debate to take place. These are (1) the existence of a strongly shared lifeworld, (2) lack of knowledge, uncertain situations and new problems (3) cognitively complex issues, (4) persuasive individuals, and (5) weak or moderate countervailing pressures and low levels of politicization.
The first condition, the existence of a strongly shared lifeworld, means that actors share the same norms, values, and interpretation of the world. The second condition, lack of knowledge, uncertain situation and new problems, concerns itself with the idea that when actors lack knowledge, face new problems or experience uncertain situations, they are motivated to analyze new information, consider different view, and learn and subsequently enter into communicative action. The third condition, cognitively complex issues, suggests that the more technical the negotiated issues, the more expert knowledge is needed and the more chance for communicative action to take place. The fourth condition, persuasive individuals, deals with the willingness of the negotiators to listen to the better argument and be persuaded. The fifth and last condition, weak or moderate countervailing pressures, addresses the level of politicization. When there are low levels of politicization, communicative action can take place more easily.
Niemann (2004: 387) asks an important question: “But, how do we recognize communicative action when we see it?” He points to the clues that Risse (2000: 18-19)identifies for spotting argumentative rationality. The most important clue is that arguments in communicative action mode are not based on hierarchy or authority; thus, pointing to status or rank is not behavior that fits the communicative action paradigm.
OVERVIEW OF THE THREE NEGOTIATION BEHAVIORS
In the preceding table I have created an overview of what has been laid out about bargaining, problem-solving and communicative action. Only the most important factors are included (for example, there was ambiguity about the decision-making rule so that factor is not in the table as it will not be possible to draw any conclusions based on that factor).
The factors that will be taken into account in the analysis are (1) environment, (2) level of politicization, (3) shared lifeworld and network characteristics, (4) type of issues or policy, (5) characteristics of the actors. The decision-making process will be taken into account by the chronological division in which the analysis is made.
The reason and accountability for merging certain factors can be found in the theories explained above. Niemann and èlgstrom & Jšnsson used different wording, but were sometimes talking about the same factor. For example, a shared lifeworld is defined by Niemann as shared norms, values, and interpretation of the world among actors, but also èlgstrom and Jšnsson addressed the importance of an orientation toward common goals, values and norms in problem-solving. They argue that when people work together for a long time and know each other, shared norms may be created and better cooperation is expected.
A factor that was named the same by the authors is the level of politicization. This is an important factor necessary in order to recognize a negotiation paradigm and shows that international negotiations are not going on in a vacuum. Helen Milner (2006: 10) sees a strong link between international negotiations and domestic politics: “International negotiations […] often fail because of domestic politics” and “pressure of domestic groups” (Nikolaev, xviii).
NEGOTIATIONS IN THE EUROPEAN UNION
In the seventies, scholarly work on negotiations was U.S.-based and focused on U.S.-Soviet relations. More recently, scholarly work has expanded to the EU (see Lewis 2005, Niemann 2006, DŸr and Mateo 2010, Tallberg 2010). Negotiations are fundamental to the EU’s identity and therefore make negotiation theory and the decision-making process in the EU inseparable (DŸr et al. 2010). Negotiations in the EU include various actors, ranging from national and local governments, to the European Parliament, European Commissioners, and civil society. Negotiations are omnipresent in day-to-day EU decision-making, but are also necessary for changing its institutional framework. For almost every decision, several institutions have to be consulted. For example, to start the negotiations about a personal data protection agreement between the EU and the United States, the Council had to approve the Commission’s negotiating mandate before talks could begin and the European Parliament had to give its consent to the outcome of the negotiations. The accession of a new country is negotiated between the candidate country and the European Commission. The decision to allow a new country to join the EU is taken by the current member states through voting in the Council, and the European Parliament.
Negotiations in the EU have certain characteristics that differentiate them from other negotiations. One characteristic of the EU negotiations is their recurrence (DŸr et al. 2010). Officials participating in EU negotiations are very likely to know each other and to have negotiated before. Lewis (2005) expects this to facilitate cooperation due to the trust and/or the common identity that is fostered. This frequency of negotiations leads to more sincere negotiation positions rather than hard strategies (Bailer 2010: 751).
Another characteristic is the diversity of the EU negotiation process. Diversity can be divided into (1) diversity of negotiation contexts and occasion, (2) diversity of actors and preferences, (3) diversity of strategies, negotiation styles, and communication, and (4) diversity of outcomes (èlgstrom & Smith 2010).
EU decision-makers manifest a diversity of negotiation contexts and occasions in which there is a coexistence of the crisis and the routine, the structured and the unstructured, the public and the private in EU negotiations (èlgstrom and Smith 2010: 675). EU negotiations are characterized by diversity of actors and preferences (èlgstrom & Smith 2010: 675). As already mentioned, the actors on the European stage include national governments, the European Parliament, the European Commission, and the Council of the EU. Among these formal actors, it is argued that the European Council, in which government leaders meet, is the dominant actor (Peterson 1999: 296). The preferences of governmental actors are seen as the most influential (Moravcsik 1993). Besides these formal actors, informal actors, including NGOs, trade unions, and consumer organizations, also play a role.
A diversity of strategies, negotiation styles, and communication can be found in the EU (èlgstrom & Smith 2010: 675). èlgstrom & Smith highlight bargaining and problem solving, but these are not the only possible strategies. Integrative and distributive bargaining (Walton & McKersie 1965) or communicative action (Niemann 2004) are examples of other possible negotiation styles. Lastly, the EU negotiations are marked by a diversity of outcomes: “the product of negotiation processes is often difficult to pin down, and the need for ratification and implementation at different levels and in different institutional and cultural contexts is a pervasive concern of the negotiators.” (èlgstrom & Smith 2010: 675).
What negotiation style might we expect in EU negotiations? We have seen that Hopmann sees bargaining as the prevalent negotiation style. Also, from a state-perspective, bargaining is the dominant behavior: “Each government is primarily concerned with its own self-interests; no executive is willing to accept policies which seem contrary to his or her national interest.” (èlgstrom & Jšnsson 2000: 686). Furthermore, constituent issues concern high-level politics and questions of national interest and will expect to exhibit bargaining. Fearon (1998: 282) adds another theoretical reason why bargaining should be expected in the EU. He argues that if actors expect to be bound for a long time by an agreement, they will fight vigorously for their positions to make sure the agreement is not in conflict with their interests and hence they will use bargaining strategies.
Similarly, problem solving can be found in the EU negotiations, especially, in the early stages of the process as well as in technical committees or for technical issues. Furthermore, the EU is seen as a dense network where actors see each other on a regular basis and know each other well, which leads to more cooperation and trust between them. In addition to that, the higher the density of a network, the greater the probability of problem solving (èlgstrom & Jšnnson 2000: 699).
Communicative action is expected due to the strongly shared lifeworld in the EU. Also, it will be the most likely to be prevalent in the pre-negotiations where politicization is not apparent yet in the negotiations (Niemann 2004).
These different views point to the variety and complexity of negotiations in the EU (èlgstrom & Smith 2010: 681). It is important to understand the context within which these negotiations take place. As seen, negotiations differ according to levels of decision-making, the issue being negotiated, and the relationship among the negotiations actors, their interests, and other factors.
From these insights I hypothesize that bargaining would be expected due to the high level of politicization, the constituent type of policy and the self-interest of each government. However, it is problem-solving behavior, which was most prevalent because all the actors of the euro zone had a common problem to solve in order to prevent a problematic future of their shared currency.
In the following sections, the methodology is explained, an overview of the situation of the case is given, and the framework in which negotiations in the EU take place is scrutinized. Then, the case is analyzed in four sub-sections keeping in mind the five factors laid out above.
METHODOLOGY AND OPERATIONALIZATION
A common problem of negotiation studies is the secrecy of negotiations (Bailer 2010). Decision-making in the European Council cannot be observed directly, nor is there access to any transcripts, resulting in a lack of data and limited knowledge for outsiders. This paper, therefore, has to rely on published accounts such as reports, press releases or press conferences, and media reports. This limitation of sources might lead to a limited outcome of the research, but due to time and money constraints, I was not able to conduct any interviews with diplomats or any other sort of research to complement the media reports and official releases. This paper will nonetheless develop an understanding of the negotiation process toward the Greek bailout and will give provisional insights about the negotiation behaviors employed during these negotiations.
Negotiations cannot be studied through a simple comparison between positions of the negotiators in the beginning and the outcome: “In order to study actual negotiations and informal exchange processes, it is necessary to have negotiation position data from the beginning of each bargaining round and to compare them with the final bargaining result” (Bailer 2010: 751) as well as the negotiation strategies employed. I have divided the case in four sub-sections to analyze the positions and strategies used in each sub-section and to make a comparison . These sub-sections are chronological.
The first sub-section concerns everything before 11 February, 2010: the first EU Summit where the Greek issue was informally addressed. The second sub-section looks at all the data from February 11, 2010 until March 25-26, 2010, the second EU Summit where the Greek issue was formally addressed . The third sub-section looks at the period of March 25-26, 2010 to the announcement of the agreement on May 2, 2010. The fourth and last sub-section addresses the moment of the agreement, May 2, 2010, and the subsequent consequences .
The factors analyzed are (1) environment, (2) level of politicization, (3) shared lifeworld and network characteristics, (4) type of issues or policy, and (5) characteristics of the actors. For these factors to be operational, some questions are made that appear in the analysis for each factor. (1) Environment: what is the current state of play? How much is there known about the problem? What is the level of certainty? (2) Level of politicization: who are the actors involved? What is their role? Is there public pressure present? From whom? (3) Shared lifeworld and network characteristics: do the actors involved know each other well? Do they cooperate often? How many actors are involved? (4) Type of issues or policy: what is being negotiated? What type of issue or policy is it? (5) Characteristics of the actors: Are the actor’s involved politicians or experts? What are their stances and preferences on the issue? Did these stances change? Are the actors cooperating?
As already mentioned, the type of negotiation behavior found depends on the situation. However, it is also important to keep in mind that that the conditions set forth by bargaining, problem-solving, and communicative action, are all “ideal types which do not often appear in their pure form” (Risse 2000: 18). Therefore, “the empirical question to be asked is not whether actors behave strategically or in an argumentative mode, but which mode captures more of the action in a given situation” (Risse 2000: 18). For each sub-section I will observe the mode that captures the action most accurately. The legal framework, within which the negotiations toward the Greek bailout take place, will be addressed first, because this has an impact on how the negotiations were taking place.
THE FRAMEWORK: THE MAASTRICHT TREATY
The Treaty of Maastricht sets the foundations for further convergence and integration of the EU member states. The Treaty defines how the member states should work as a union, what each institution’s responsibilities are, and how the Union should evolve in the future. Most importantly, the Treaty of Maastricht introduced the Economic and Monetary Union (EMU), which is the policy that led to the euro (McNamara 2005: 141-142). Member states considered how the Treaty applied to Greece’s financial situation. However, the Maastricht Treaty is anything but straightforward and clear: “[it] naturally embodies a variety of artful compromises and deliberate obfuscations, resulting in a strikingly high degree of ambiguity about just how the euro zone is actually to be managed.” (Cohen 2007: 761). No specific article in the Treaty addresses how to handle a problem like Greece’s and, consequently, those states that were in favor of a bailout for Greece called upon various articles in the Treaty for legal support. The fact that there was no specific article in the Treaty addressing the possibility of financial support in case of financial difficulties raises the question as to whether there should be a legal framework outlining member state action or not.
There are various articles in the Treaty that can be called upon to address Greece’s financial problems. Some of those articles favored financial assistance to Greece, while others opposed it because there is no legal justification for the EU to support Greece financially. The actors in the negotiation process (mostly the members of the euro zone) based their arguments upon different articles depending on their viewpoint.
Article 103a of the Maastricht Treaty provides the possibility for euro zone countries to assist Greece financially:
“Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by exceptional occurrences beyond its control, the Council may, acting unanimously on a proposal from the Commission, grant, under certain conditions, Community financial assistance to the Member State concerned.”
Greece clearly faced financial difficulties, but many have raised questions about the phrase “beyond its control.” Some have argued that Greece’s deficits were not beyond its control (CNBC 2010, February 10) and resulted from poor policies and lack of strong government. Because the justification of Greece’s bailout derives from the Treaty, it seems that the “beyond its control” specification has been overlooked for the sake of euro zone health.
Article 104b of the Treaty speaks about the responsibilities of the EU: “the Union shall not be liable for or assume the commitments of central governments.” This article has been used by many to argue that “the EU had no legal basis to bailout Greece.”
Why then did the euro zone members decide to bailout Greece? The main reason is that mishandling the crisis could have had a contagious effect on the rest of the EU “with a price tag substantially greater than the cost of a well-managed rescue operation” (Rieffel 2010). The economies of the euro zone countries are intertwined because of their shared currency. There is no doubt that problems in any euro zone member state are bound to have negative spill-over effects for its partners (Gros & Mayer 2010: 2). These economic ties mean that each member has responsibilities to avoid creating difficulties for its partners. Cohen (2003: 280) expected this behavior in a monetary union: “Many worry […] about the diminished capacity of national governments to manage their own economy in the event of unanticipated shocks.”
BAILING OUT GREECE: THE NEGOTIATIONS
On May 2, 2010, the euro zone leaders approved a massive bailout plan for Greece. The Mediterranean country received 110 billion euros with certain conditions. The question is how this agreement was reached. Who were the actors involved, where was the agreement negotiated, and more importantly, what type of strategies were used and at which stage?
The most important actors include the European Council (“EU Summits” of the government leaders) and the Council of the European Union (also known as the Council of Ministers). In the European Council meetings, heads of states negotiate the general political guidelines of the EU. The European Council is the most supple and unconstrained source of agency in EU decision-making whose authority cannot be challenged by any other decision-making body at any other level of EU governance (except, in rare cases, by the ECJ) (Peterson 1999: 296). In the Council of Ministers (which is very sectoral), the Ministers of a certain field meet and debate about legislation. The ministers of economy and finance meet in the so-called Economic and Financial Affairs Council, Ecofin.
Another important actor is the organization of the finance ministers of the euro zone, which is called the Euro Group and whose president is Jean-Claude Juncker. The Euro Group always meets a day before the Ecofin meeting. Furthermore, the Greek prime minister, George Papandreou, and the Greek finance minister, Giorgos Papakonstantinou, have played an important role at the European Council and the Council of Ministers, respectively. The president of the European Central Bank, Jean-Claude Trichet, and the president of the European Commission, JosŽ Barroso, have also significantly contributed to the negotiations.
Sub-section 1: before the February 11, 2010, EU Summit
(1) Environment: The financial problems of Greece became apparent during the EU Summit in Brussels in December 2009 when the Greek Prime Minister, George Papandreou, disclosed the then state of play, and thus questions were raised regarding whether or not the EU would help Greece financially and how it would do so. Calling for help at the IMF seemed a very unlikely event because that would bring “humiliation” to the other members of the euro zone (The Economist 2010, January 28). The IMF normally only bails out developing countries. Decision-makers remained uncertain about how and whether the situation would be handled. The fact that the Treaty does not foresee a legal bailout (The Economist 2010, January 28) and does not include provisions regarding how to approach such an issue, increased the levels of uncertainty about the problem.
This uncertainty was also seen in Greece where several strikes took place against the announced spending cuts and tax increases by the Greek government. First, farmers started blocking major highways across the country and hampering the transportation of goods (New York Times 2010, February 24). In the beginning of February, custom and tax officials were on strike for 48 hours, which prevented the arrival of imported goods for several days. The uncertainty and lack of knowledge about how to manage these initial problems indicates that problem-solving or communicative action behaviors are most probable.
(2) Level of politicization: At this stage in the negotiation process, not so many actors were involved yet. Diplomats were partially talking about it and in some cases also state leaders. Across the institutions of the EU, from the Central Bank in Frankfurt to the Commission to the Council of Ministers, the emphasis was on waiting and seeing if the Greek government could live up to its promises of spending cuts and structural reforms in order to reduce debt and deficit (The Guardian 2010, February 9). A prominent actor was the former Commissioner for monetary and economic affairs, Joaqu’n Almunia, who insisted that the euro zone countries could overcome the problem without recourse to the IMF (The Guardian 2010, February 3). In addition, even though the public domestic pressure was rising in Greece, it was not yet insurmountable for the negotiations. It can be concluded that the issue was not very politicized (yet) and thus problem-solving behavior or communicative action is expected.
(3) Shared lifeworld and network characteristics: According to Niemann (2004) a shared lifeworld is the first precondition for communicative action and is well developed in the EU given its dense patterns of institutionalization and socialization. However, in this first stage of the negotiation process the shared lifeworld is not noticeable yet. Only a few contacts were made and no official meeting had taken place, which indicated little interaction between the actors involved. One could say that actors in the EU are always the same, but it seems that these few interactions occurred among actors that did not know each other well. For example, Prime Minister Papandreou assumed his position only in October 2009, and therefore, had minimal chances to interact with his counterparts in the EU at this point1
. The finance ministers, however, did know each other better. Especially those of the Euro Group who had met numerous times, such as over a video-conference on Wednesday February 10, the day before the state leaders met in the informal EU Summit (Euractiv 2010, February 11). The Party of European Socialists (PES) also had a meeting the evening before the EU Summit. All PES prime ministers, who include Zapatero and Papandreou, were present and agreed on a common declaration that said they backed financial support for Greece (PES 2010, February 11). The Euro Group and PES of course knew each other better and here networks were dense. To summarize, it seems that across networks knowing each other well was rather rare, so networks are less dense, which indicates bargaining behavior would be more prevalent.
(4) Type of issues or policy: In this first stage, the primary issue discussed was if Greece would be bailed out. In the beginning of February, the issue moved to how Greece would be bailed out. Also politicians as well as the media were raising questions about the possibility of a bailout in the legal framework. Nobody quite knew how to interpret the Maastricht Treaty. According to the type of issues, which are constituent and redistributive as defined by èlgstrom & Jšnsson, we can expect bargaining behavior.
(5) Characteristics of the actors: The actors involved were a mix of state leaders and high officials. Their opinions and preferences were also mixed: some thought Greece should be bailed out, while others were opposed to a possible bailout. “I don’t see any suggestion that anyone is coming with a bailout,” said a European commission official (The Guardian 2010, February 3). And the European Central Bank held aloof. Former commissioner for monetary and economic affairs, Joaqu’n Almunia, however, insisted that the euro zone countries could handle the problem (The Guardian 2010, February 3). Germany held the opinion up until some days before the first EU Summit that there could be no bailout for a country in the throes of a public finances crisis (The Guardian 2010, February 1). It is rather unclear what type of negotiation behavior is expected considering the characteristics of the actors. The clues are pointing in different directions, which make bargaining, problem-solving and communicative action possible.
Sub-section 2: EU Summit, 11 February, 2010, until EU Summit, 25-26 March, 2010
(1) Environment: On February 11, 2010, an EU Summit took place in Brussels. It was an informal meeting called by President Van Rompuy in January and the Greek bailout was not on the official agenda. However, it was expected that state leaders would reach a political agreement on helping Greece (Euractiv 2010, February 11). Leaders from the euro zone countries promised to help Greece under certain conditions. These conditions were especially crucial for Germany: “German politicians insisted that the plan did not amount to a “blank cheque” for Greece.” (Financial Times 2010, February 11). In a speech, Van Rompuy, the European President, made clear that Greece had not requested any financial support. The agreement lays out a set of guidelines for the financial support of Greece (Financial Times 2010, February 11).
In the mean time, strikes throughout Greece became the norm in February. Various unions, public sector and private-sector employees all held strikes throughout February, which paralyzed the country through the closure of airports, schools, and public transportation. The political and social environment was grim. As one journalist puts it: “If I were the European Commission delegation office in Athens, I would be buying some fire extinguishers.” (The Economist 2010, January 28). In addition, Germany was feeling increased public pressure not to bail out Greece.
At this stage, uncertainty was less high than in the period before the EU Summit. Not only was it certain that financial help to Greece would be possible, but also that government leaders from the euro zone would be willing to help. The only uncertainty that remained was who would provide the money. It seems that problem solving or communicative action behavior would still be prevalent; however, in a lesser extent than in the previous stage.
(2) Level of politicization: The actors involved gradually became more official and of greater importance, including the European President, the President of the Commission, the French President Sarkozy, the German Chancellor Merkel, Ecofin, and the Euro Group. They all had official meetings with each other during this stage. Furthermore, in Germany opposition started to voice its anger about the probability of Germany being the biggest provider of money. The level of politicization grew by the day as public pressure started to rise. Also, the euro zone countries all started to see that addressing Greece’s problems was in their national interest, as the spillover to their own, not so healthy, economies was very probable.
(3) Shared lifeworld and network characteristics: The actors involved, especially Ecofin and the Euro Group, do know each other well and cooperation among them was high and intense. Other actors, who see each other on less regular basis, got to know each other also better because negotiations about this topic had been going on for a while. This seems to indicate a move toward problem-solving behavior.
(4) Type of issues or policy: Now that there was already an agreement that it would be possible to bail out Greece, negotiations more often dealt with the issue of money. From where would the money come? Still, constituent and redistributive issues were negotiated which implies bargaining behavior to be employed.
(5) Characteristics of the actors: European leaders sent out conflicting signals over aid to Greece. Berlusconi, the Italian prime minister, strongly backed EU support, whereas, Germany’s Chancellor Angela Merkel maintained her stance that Greece did not need a bailout (Euractiv 2010, March, 22). In an interview not long before the second European Summit, German Chancellor Angela Merkel said: “I don’t believe that Greece has any acute financial needs from the European community and that’s what the Greek prime minister keeps telling me.” (The Guardian 2010, March 21). The Euro Group reaffirmed the commitment of the euro area member states to take coordinated action if needed (Euro Group 2010, March 15). The Euro Group also insures that the proposals would be fully consistent with the Treaty framework. According to the characteristics of the actors in this phase of the negotiations, it seems that bargaining would be the behavior employed. State actors have taken hard stances and did not seem to change them nor be open for persuasion.
Sub-section 3: From EU Summit, 25-26 March, 2010, until agreement on joint financial program for Greece, 2 May, 2010
(1) Environment: At the EU Summit that took place in Brussels on March 25 and 26, 2010, EU leaders agreed to strengthen economic policy coordination and to issue early warnings against failing member states (EUCO 7/10). Spanish Prime Minister Zapatero, holder of the EU’s six-month rotating Presidency, hailed the agreement as a “terrific step forward” (Euractiv 2010, March 29). On April 11, an agreement was made about details of exactly how money would be lent to Greece. Greece would get 30 billion euros from the other euro zone countries in bilateral loans coordinated by the European Commission and paid through the European Central Bank (The Guardian 2010, April 12). As the days passed, other euro zone countries began to fear that the crisis would also hit them and the atmosphere became nervous. Less and less uncertainty or lack of knowledge was noticed; indicating that bargaining behavior would be used.
(2) Level of politicization: The actors involved remain mostly the same. In particular, the Euro Group played a huge role and met several times. For example, the Euro Group agreed upon the financial specifics of the bailout on April 11 during an emergency telephone conference (The Guardian 2010, April 12). The most important actor has always been Germany because it is the largest contributor to the EU budget. Merkel has been the pivotal figure in all these negotiations (The Guardian 2010, April 28).
(3) Shared lifeworld and network characteristics: Especially in the final weeks of the deal, the cooperation among the various actors had increased. As various actors interacted over and over again, networks became denser and strong ties developed, which signified the use of problem-solving or communicative action.
(4) Type of issues or policy: Again constituent and redistributive issues are negotiated, which implies bargaining behavior was employed.
(5) Characteristics of the actors: After weeks of saying “no” to a Greek bailout and claiming a bailout was not legally allowed (The Guardian 2010, April 9), Angela Merkel changed her position on April 28, 2010, and she pledged to shore up the common currency (The Guardian 2010, April, 28). This important change of position was also crucial for the euro zone, as without Germany, the biggest payer of Europe, a bailout would not have been possible. The change of Germany’s position is an indicator that it was open to persuasion and communicative action.
Sub-section 4: From agreement on joint financial program for Greece, 2 May, 2010, onwards
(1) Environment: On May 2, 2010, the euro zone members and the IMF agreed to an 110 billion euro bailout package to rescue Greece’s economy (BBC news 2010, May 2). 80 billion euros would come from the EU and the remaining 30 billion euros from the IMF. In return for the loans, Greece would have to make major cuts and great sacrifices. The agreement came because fears arose that Greece’s debt crisis would undermine other debt-laden states that use the euro (BBC news 2010, May 2). The Greek government had to enforce several harsh measures, which included increasing the VAT, scrapping bonuses, and raising taxes on fuel, alcohol and tobacco. These financial measures were expected to generate anger from the public. Another nationwide strike was scheduled. Uncertainty and lack of knowledge were reduced to a minimum; this indicates bargaining behavior would be used.
(2) Level of politicization: It seems the level of politicization is the highest in this period. The actors closing the deal were all high-level politicians that have their national interests and domestic pressures in mind. Germany faced strong public pressures and Merkel had an upcoming election. In Greece, the public protest did not occur and another nationwide strike took place.
(3) Shared lifeworld and network characteristics: The leaders in the EU met more these last three months than ever before. Their strongly shared lifeworld built through the last months seem to indicate the use of problem-solving behavior or communicative action.
(4) Type of issues or policy: Now that an agreement is found for Greece’s situation, the euro zone countries had to make sure they prevent the same happening in the future. Negotiations went on about what mechanisms and policies to implement to solve similar problems in the future in a better and faster way. Again, these are constituent and redistributive issues, which imply bargaining behavior was employed.
(5) Characteristics of the actors: After the state leaders of the euro zone agreed on a plan for Greece, they also agreed that a mechanism for the future was necessary. Spillover effects were possible and to protect the euro they decided to approve new lending facilities for euro zone member states in serious financial distress (Sibert 2010a). It seems all their noses were pointing in the same direction with the desire to act now in order to prevent or to be able to deal better with future cases. These negotiations happened fast and the cooperation went smoothly, which indicates the prevalence of problem-solving behavior.
Negotiations do not take place in a vacuum, rather, the context has an impact on negotiation processes (èlgstrom & Jšnsson 2000: 699). In the theoretical part of this paper, the importance of negotiations was explained and the vital role negotiations play in the EU was highlighted. Three negotiation behaviors have been explained: bargaining, problem-solving, and communicative action. I have argued that in the EU negotiations toward the joint financial program for Greece, bargaining behavior was expected due to the high politicization and the type of policies discussed, but that nonetheless problem-solving was prevalent.
To analyze the negotiations, I have used five factors2
as a tool to recognize whether bargaining, problem solving, or communicative was dominant. The five factors used in the analysis are (1) environment, (2) level of politicization, (3) shared lifeworld and network characteristics, (4) type of issue or policy, and (5) characteristics of the actors. On the basis of the literature review, it was possible to hypothesize that if the environment was certainty, predictability, and no lack of knowledge about the problem; if the level of politicization was high; if there was no shared lifeworld and a loose network among the actors; if the actors were high level politicians such as state leaders; then bargaining behavior is expected. In the initial phase of the negotiations, bargaining was not so prevalent yet, but in the three subsequent phases it became the predictable behavior.
However, it is important to think about which of the five factors is more significant than others. The level of politicization seems the most important; the issue was very politicized and bargaining behavior would have been expected (except for the first phase). On the other hand, the fact that big changes in interests have occurred seems to indicate that even though the level of politicization was putting pressure on the actors, the actors were still able to embrace different stances on the issue, (German Chancellor Angela Merkel changed her position from not wanting to help Greece to wanting to help Greece despite the domestic pressure not to do so).
In the literature review, we have seen that self-interest is associated with bargaining behavior and common interest with problem-solving and communicative action. The fact that the euro zone countries did not act in their self-interest, but saw the importance of helping Greece as a common interest, shows that bargaining could not have been the prevalent behavior in the last three, and most important, stages. In contrast with what would have been expected as negotiation behavior, bargaining was not prevalent. The characteristics of communicative action have helped prove that bargaining was not the prevalent negotiation behavior by showing the importance of the change in attitude of Angela Merkel. This change is evidence that Merkel was open for persuasion, one of the conditions for communicative action to take place. However, being open for persuasion means being convinced by the better argument (Niemann 2004: 384). It is unclear if Merkel changed her mind due to a better argument, or because she saw the importance of bailing out Greece in order to avoid a potential spill-over to other euro zone countries and its negative effect on their shared currency. The second reason seems more reasonable according to the analysis; this means she acted for the common interest. Also, only in the initial phases there was lack of knowledge about the issue but after that no longer, which indicates that communicative action only might have played a role in the early stage of the process. Furthermore, an important clue to identify communicative action is that arguments in communicative action are not based on hierarchy or authority, and thus, pointing to status or rank is not a quality that fits the communicative action paradigm (Risse 2000: 18-19). In the analysis of the case, however, it became clear that status has played a role in the negotiations. Equality among partners was not fully present: Germany and France have played a far more important and decisive role than other euro zone countries.
Even though communicative action falls short in fully explaining the case study, it has played an important role in undermining the arguments for bargaining. It is thanks to the conditions of communicative action that a clear distinction with bargaining was made. Problem solving, on the other hand, has proven to be the negotiation type used the most. The actors have not acted in their self-interest, but in the common interest of the EU and used problem solving as negotiation type. Furthermore, the longer the actors were working together, the better they knew each other and the denser their relationships became (èlgstrom & Jšnsson 2000: 695-696). High-level politicians have negotiated for a long time in difficult circumstances but have cooperated and solved the problem together. These arguments indicate that problem solving was the prevalent behavior in these negotiations.
During the analysis of the negotiations, recurrence, one of the characteristics of the EU negotiations has facilitated trust and common identity. Thus, cooperation and more sincere negotiation positions occurred than hard strategies (See DŸr et al. 2010, Lewis 2005, and Bailer 2010). Furthermore, Hopmann (1995) is convinced that problem-solving produces greater flexibility and more frequent, efficient, equitable, and durable agreements than bargaining does. The agreement on May 2, 2010, has already proven to be efficient and durable as it was also used for the bailout of Ireland.
Concerning the framework in which these negotiations took place, the analysis showed that the legal and institutional framework, the Maastricht Treaty, was not sufficient for the EU to deal with the financial problems of euro zone countries. Subsequently, due to euro zone countries’ fears of the spillover effect, the EU created a new mechanism: the European Financial Stabilization Mechanism (EFSM) and the European Financial Stability Facility (EFSF). As we have witnessed, these new mechanisms have already proven and served their purpose. Where Greece’s negotiations took several months, the negotiations for Ireland took only a couple of days. Furthermore, during the EU Summit in December, 2010, the state leaders decided to abolish the temporary status of these mechanisms and make them permanent as of 2013.
The repercussions of these negotiations have led to a solid mechanism for the EU to deal with similar cases in the future and safeguard the existence of the shared currency at all times. Furthermore, they have created the foundations for the future and have indicated that problem solving is an important negotiation type used in the EU where common interests can prevail over self-interest.
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1 Even though Papandreou has also been Minister of Foreign Affairs during the nineties, he has not been involved in economic negotiations extensively. 2 Derived from Niemann’s conditions for communicative action (2004, 2006) and èlgstrom & Jšnsson’s factors to recognize bargaining or problem solving (2000).
1 Even though Papandreou has also been Minister of Foreign Affairs during the nineties, he has not been involved in economic negotiations extensively.
2 Derived from Niemann’s conditions for communicative action (2004, 2006) and Ëlgstrom & Jönsson’s factors to recognize bargaining or problem-solving (2000).