As with many long-running disputes, positions can become entrenched at the expense of long-term interests, and short-term decisions can make future concessions more difficult.
Leadership Styles During the Crisis Negotiations Surrounding a Potential Greek Default
When the specter of a Greek default threatened the Eurozone’s unified currency and the stability of the zone’s interlinked economies, talks between International Monetary Fund (IMF) President Christine Lagarde and Greek Treasury Minister Yanis Varoufakis show how certain leadership qualities can help move negotiations forward, even when tensions are high and information is unclear and changing.
Since the start of the global economic recession in 2008, few issues have proven as explosive as the Greek debt crisis. The Greek government’s commitment to repay billions of dollars in loans has been a source of contention with creditors ever since a sizable bailout was issued in 2010. In early April 2015, these concerns were highlighted by fears that a requisite $450 million repayment by the Greek government might be in jeopardy. Talks to ensure the payment were overshadowed, however, by Greek demands for nearly $300 billion in German reparations for losses suffered during World War II.
In public negotiations that are fraught with mistrust and disputed facts, it can sometimes be difficult to see how a satisfactory agreement will ever be possible. Behind the provocative, grand gestures that take place in public, however, good leaders can carve out a space in which to lay the foundation for mutual points of agreement, strengthening the relationships necessary for ensuring lasting success. Success often depends on small gestures, but they can pay off well in the long term.
Pick a Good Representative at the Table
In 2010, the European Union, European Central Bank, and IMF, called the troika, contributed $149 billion to bail out the ailing Greek economy. Audits of the nation’s finances revealed large loopholes and relaxed accounting mechanisms that were worsening already deep financial woes. European heads of state led the troika’s demands for reforms and austerity measures as terms for repayment on the loans. The conservative Greek government agreed to repayment terms, but ultimately Greek voters did not. Leaders like German Chancellor Angela Merkel became lightning rods for Greek fears, and helped usher in a left-wing, anti-austerity government this year.
Intuitively, Merkel’s involvement made good sense, and was likely intended to calm investors who saw the German chancellor join with other European leaders to ensure repayment and reform. Unfortunately, involving a powerful public figure too early in a negotiation can have consequences. It may seem somewhat counterintuitive, but a high leadership status can reduce one’s ability to make the necessary concessions that create the foundation for an agreement. A president’s word is often perceived as final, making it difficult for her to be involved in the necessary tradeoffs required for forging consensus.
With the repayment crisis, rather than selecting a political leader to negotiate, Lagarde worked directly with Varoufakis. As leaders with technical expertise, they reduced the exposure of political leaders on both sides, lowering the potential for political disruption. Merkel continues to draw the ire of Greek leaders, but even in the midst of the sudden calls for reparations, Lagarde emerged with a commitment from the Greek government to make the upcoming payment.
Signal Priorities Carefully
Properly informed observers are an important constituency in all deals. This is especially true in financial and business negotiations where global markets depend on collective confidence in order to gauge long-term stability. Despite the severity of the Greek crisis, however, observers could be forgiven for struggling to follow the fine points in the tense and often-explosive negotiations between Greek officials and their European counterparts. Valuable leadership qualities in such an environment include the ability to signal clear, concise priorities. Doing so can make it easier to raise or lower pressure on your counterpart, or change positions without serious setbacks.
For example, concerns about the April 2015 Greek payment reached fever pitch when Varoufakis seemed to publicly suggest that Greece would indeed fail to make the payment. After talks with Lagarde, Varoufakis clarified his statement and assured repayment. Lagarde followed suit, registering her confidence in his statement. Their support for one another sent a clear message and demonstrated that the substantive negotiations taking place out of public view are a place where productive dialogue between the parties is possible.
Know When to Push—Know When Not to Push
The troika froze funds to Greece, demanding greater signs of reform. In turn, the Greek government sought increasingly close ties with Russia.
By turning to the Russians, the Greek government explored what negotiation experts call the best alternative to a negotiated agreement (BATNA). To keep the Greeks at the table, Lagarde’s detailed knowledge of the underlying bread-and-butter issues give the troika a unique ability to manage negotiations in ways that other leaders may not be able to ensure. The Greek crisis demonstrates that effective negotiators need to be able to manage the details of even the most complex of crises, and this often requires an unexpected set of leadership skills.
What type of leader are you, and do you change your leadership style depending on the negotiation?