Leadership lessons: The Greece deal fallout

The fallout from the fatiguing negotiations over a third assistance package to Greece is immense. Never before in the history of the EU have harsher statements on the negotiation process followed a tough compromise.

Germany’s role and position has become the focal point of the post-deal debate. A grand coalition of economists, politicians (mostly outside of government), public intellectuals and media figures has formed to accuse Angela Merkel’s government of staging a coup, if not against Europe itself, then at least against democracy in the continent. The charge list is extensive. Merkel and her government stand accused of seeking to coerce Greece into a misguided policy, of overruling objections from other countries, of splitting the Euro (if not the EU), of risking the Franco-German relationship, of throwing overboard the reputation gained over decades of post-war German European policy and of forgetting their gratitude for the support and debt relief gained after the second world war.

The German political classes seem genuinely disturbed by the degree of Germany-bashing… In so doing, they show little of the unreflective arrogance of the powerful.

Tellingly, this international debate has had some resonance within Germany, a clear indication that the country has not yet fully digested the leading role it plays in Europe in general, and within the Eurozone in particular. The German political classes seem genuinely disturbed by the degree of Germany-bashing, and seem genuinely interested in understanding the political consequences of recent Eurozone dealings. In so doing, they show little of the unreflective arrogance of the powerful.

Such openness will serve them well as the last few weeks offer up a number of lessons on leadership that Berlin would do well to heed. First, events and their public interpretations confirm that German leadership in Europe comes at a price.  The controversies will add more fuel to the fire of resentment from political groupings or EU governments that advocate softer rules for the Euro, but also amongst those who take a more hardline view on the Greek case. While the former will accuse Berlin of strangling growth, the latter could resist following the German lead because of the cost of the compromises agreed upon by Berlin.

The second lesson is that leaders need to be active communicators particularly in the European area where unanimity or super-qualified majority is required on most key decisions. When everyone has a veto at least in theory, a lead country needs to mobilise support early on, build coalitions around its proposals and secure support at least from potential vetoers. In this sense, Wolfgang Schäuble’s sharpest sword, the option of a temporary exit of Greece from the Eurozone, would have been no less sharp, but likely less divisive if Berlin had given more lead time on the dossier.

Beyond winning partners over via shared interests and preferences, leaders win followers by their contribution to the common good

Third, leaders need to anticipate impact and should have ideas on how to deal with it. As it turned out, the perceived credibility of a managed Grexit was key to securing an outcome in the negotiations; having averted Schäuble’s plan B became Tsipras’ principle justification for accepting a compromise. Yet now, the German government is trapped in its own reasoning. Plan B will unavoidably become the primary option for Berlin should negotiations on a third package not lead to agreement.  Down this road, Germany may well be forced into manage another haircut for Greece, this time taking losses for German taxpayers, because that may be the only carrot in the deal that might make Athens accept the proposition. Having played their Grexit card in the negotiations this time, it will be of less use next time. Merkel may be forced to paint an ever-darker picture of the chaos and humanitarian crisis triggered by Greek bankruptcy, abandoning forever the more positive message of European integrity.

The fourth lession is about expectation management. Beyond winning partners over via shared interests and preferences, leaders win followers by their contribution to the common good. Leaders need to be seen to lead on the big ideas, the values or the ambitions of a group. Germany’s leadership role is built, in part, on its record as a driver of integration and of being the only large member state, which does not game playing in its negotiating positions.

But in the current situation, Berlin needs to broaden its stance. If additional means will be needed to deal with the Greek crisis and to strengthen decision-making in the Eurogroup, if Germany wants to lead, it must drive the deepening of Eurozone governance. On July 14, the French President has once again raised ideas around a government économique, which have been floating around for quite some time. Many of the smaller EU members would also prefer a Germany that was seeking change, because it would create the need of their own involvement. Current intergovernmentalism favours size, a reform agenda would favour numbers.

Good leaders will seek to demonstrate consistency on goals but apply flexibility on strategy

The fifth and final lesson for German European policy has to do with consistency. A leadership that is overly dogmatic will either be overtaken by events or will have to be sustained at disproportionate cost. Good leaders will seek to demonstrate consistency on goals but apply flexibility on strategy. If German policymakers want to maintain the primacy of rules over politics, then the rules need the capacity to handle challenges to the system. If they don’t, the rules either need to change or they will lose their governing effect. Given the political goal to uphold the integrity of the Eurozone, its rules need to be able to deal with insolvency, need to contain a democratically legitimised way of controlling excessive spending, and require more elaborate and equally legitimate means of fiscal stabilisation by way of transfers.

Consistency must also be applied on the issue of structural reforms. If the initial assistance and the second package for Greece (as those for Ireland and Portugal) were conditioned on structural reforms, the need for a third package with additional funding in excess of €70 billion, could hardly have been agreed upon without additional conditionality. Meanwhile, German policymakers should have learned that the governance capacity of Greece to design, legislate and to implement the required reforms was and is insufficient. A consistent strategy would not give up on the goal, but it would also not simply repeat the previous approach. Germany needs to find a different pathways to achieving its goals, while maintaining its principles and its objectives. Thus, though it would come rather late in the process, Berlin should offer Greece comprehensive direct support in terms of know-how, equipment, personnel and funding in order to rebuild the Greek state. Better still, such a “transformation partnership” should be launched hand in hand with France as a trilateral agreement. The costs would be a fraction of the price of failure; the political gains would be significant.

Leading needs courage, it can’t be afraid of challenge or change and it won’t necessarily be popular. Now, Germany’s policymakers have to choose between dominance and leadership. Though much of the current critique of Berlin is either unfounded or misunderstands the institutional constraints of EU policy-making, these are not reasons for complacency. In spite of all the changes Germany and Europe have been through over the past 25 years, the EU remains the principle foundation and amplifier of Germany’s role in Europe and the world. To lead the EU may seem like a burden; it is, in truth, an historic opportunity.