Bloomberg.com reported today that Greek Prime Minister Papandreou “set a one-week deadline for the European Union to craft a financial aid mechanism for Greece.” If not met, Papandreou threatened to turn to the IMF for emergency funding. Greece needs to raise about 10 billion euros ($14 billion) to refinance bonds coming due in the next two months.Is this threat an effective negotiation tactic for Greece?
A threat is simply a very aggressive way of telling the other side you can make its Plan B very bad. So let’s evaluate both sides’ Plan Bs if the EU and Greece can’t agree on a bailout.
Greece could default which, while bad for both parties, would be much worse for Greece. Alternatively, Greece could seek aid from the IMF. This would require Greece to implement austerity measures required by the IMF (described by Papandreou as a “fiscal corset”) and would, according the French President Nicolas Sarkozy, “show the EU can’t solve its own crises.”
From my perspective, Greece doesn’t have much leverage here. It needs the money much more than the EU needs to pay it. Likewise, Greece’s best alternative is worse than the EU’s. The deadline aspect might increase the parties’ urgency slightly but I doubt Papandreou’s threat will carry much weight otherwise.