It has been almost a year since the 25th of January 2015, when Alexis Tsipras became the first elected Prime Minister of a radical Left government in Europe. During the past year he has been in constant negotiations with the rest of Europe to mitigate the demands for austerity measures and at the same time secure funding for Greece. There is plenty to learn from the complete failure of his government to stand for almost anything Left, let alone radical. Politics aside, the most important lesson to learn is how to negotiate. Or, rather, how not to negotiate.
Tsipras has made almost every mistake in the book. He began by setting up an antagonistic situation between himself and his negotiating counterparts, always presuming that whoever was not on his side was on the side of the German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble. He owed his rise to power by promising that he would send Merkel home. In reality, the interests of Greece and the rest of the countries of Europe, including Germany, were sufficiently aligned to secure a win-win outcome. Tsipras failed to recognise this, being a victim of the well-known fixed-pie bias, a systematic mistake that does not allow people to expand the pie and build win-win agreements.
Once Tsipras thought that for him to win, the other party had to lose, negotiation inevitably became a power struggle. Instead of a real negotiation, neutral observers around the world witnessed the Greece-Europe conflict as a remake of the David-Goliath story, often supporting David, the underdog. Tsipras even chose to raise the stakes and turn the conflict into a battle for changing Europe. On what most people would probably not even bet €10, Tsipras decided to gamble the future of his country, confident that he would eventually win. This type of overconfidence is a well-established effect in the literature and Tsipras serves as a world-class example.
Surely, he must have thought he had an ace up his sleeve, one might say. Overconfidence alone seems an unlikely cause for the extreme turn of events of the previous year. Indeed, the Greek Prime Minister did intend to threaten with something that he thought Europe would never allow: the long dreaded #Grexit. Shortly before the referendum was held in Greece in July, Yanis Varoufakis, Finance Minister at the time, calculated the cost of a Greek exit to the Eurozone at up to one trillion euros. Europe would be bound to capitulate to our demands to save €1tn, he probably said to his Prime Minister.
The worst mistake that Tsipras made was to trust Varoufakis and his far-fetched, unscientific suppositions about how negotiation works. It was Varoufakis who mistakenly thought that he could not negotiate to fix certain aspects of a marriage unless he contemplated dissolving the marriage itself. Of course, as detrimental as such threats are to any type of relationship, nobody would really believe that Greece was ready for a divorce with Europe. Varoufakis and Tsipras wanted to prove everyone wrong. The Greek Prime Minister started courting other likely funders, such as Russia, and Europe started to prepare for the contingency of Grexit, even putting it forcefully on the negotiating table itself.
Tsipras and Varoufakis fearlessly kept trying to make the threat of Grexit credible. They wanted to show the rest of the world that they were willing to take the situation to the extreme ends; that they did not care if the economy was slowing down, if banks closed, if unemployment rose. They would never succumb to the demands of the other side, even if they had to claim they were crazy.
However, everyone knows that the promise or threat of a politician is not entirely credible, especially if it goes against the interests of his own country. Eventually Tsipras came to realize he was heading for a real catastrophe, removed Varoufakis from office, and succumbed to the demands of the EU and the IMF. These demands had already become much more savage because the initial 7-month period of sterile negotiations had already taken an incredible toll on the Greek economy, including the effect of the capital controls that the government imposed – and remain in force to this day.
Tsipras is still trying, less forcefully, to alleviate EU and IMF demands, but to no avail. He must have by now heard one of the best-known concepts in the study of negotiation, the Best Alternative To a Negotiated Agreement (BATNA). He must have understood that good negotiators never threaten the other side with a breakdown of negotiations if they have a poor BATNA. Firstly, because nobody will believe that they would actually resort to their BATNA and, secondly, because nobody will grant them demands that leave them much better off than their BATNA. Instead, they will be told that if they do not like what is on offer, they are free to walk away towards an inferior outcome. In Greece’s case, the best alternative was #Grexit, i.e. complete chaos: as long as Greece threatened #Grexit in negotiations, it was certain that it would not get a much better deal than #Grexit.
Tsipras’s mistakes (fixed-pie bias, overconfidence, miscalculations, incredulous threats, trusting the wrong agent, failing to understand the BATNA) have resulted in one of the worst financial disasters that Greece has suffered in peacetime. Greece has often had the misfortune to take harsh economic measures to make amends for mistakes of the past, such as the mismanagement of public funds, the excessive growth of the public sector, or the lack of strategic vision. In all cases, however, money actually went somewhere; it was simply not funneled toward the right places. Under Tsipras, the prolonged negotiation led to uncertainty, economic recession and total collapse of Greek banks, at a time when Greece was just coming out of a painful road to economic recovery. Essentially, all the money evaporated into thin air. Well, not exactly. Alas, it went to fuel the ego of the man who thought he could negotiate.