An interesting story appeared in the Irish Times this weekend, saying that the negotiating tactics of the euro periphery, the unfortunately named PIIGS (Portugal, Ireland, Italy, Greece and Spain) have let them get away with it. The PIIGS have a strong set of common interests in the resolution of this crisis, but instead of increasing their leverage by negotiating as a bloc, they have allowed themselves to be isolated, neutralised and saddled with oppressive austerity programmes that are disastrous for their citizens.
In short, whether due to an inability to escape the punishing cycle of domestic crisis management or simple diplomatic incompetence, the PIIGS have inadvertently contributed to the prolongation of Europe’s misery.
So how can the PIIGS influence events when they are in such poor economic shape and saddled with debt?
The article notes that unilateral default by a state is often called the “nuclear option”. An Irish or Greek default would deal a big blow to the euro zone, but an ultimately survivable one.
A co-ordinated unilateral default by all the PIIGS, however, would collapse the currency area instantaneously. To extend the nuclear metaphor further we’d go from North Korea to superpower.
Only by forcing the issue in this manner can the PIIGS gain sufficient leverage to be effective negotiators. Their individual positions are so weak that they cannot bargain, they can only beg, says the article.
This is why the terms of the “bailouts” have been so hugely punishing, and accompanied by a collapse in support not just for governments, but even for entire systems and open civil disorder.
Alternatively a collective bargaining position allows the peripheral governments to take, and more importantly to be seen to take, an active and positive role in the governance of the euro zone.
Read More: Irish Times