The left case for Brexit, or so called Lexit, has been well articulated during the referendum by Tariq Ali, John Hilary, and others. Paul Mason made it in one column, then rowed back again in another. A number of notable Greens have been leavers: Rupert Read, who changed his mind, and Jenny Jones, who made her case in the Guardian.

In the most recent edition of New Left Review, Susan Watkins summarised this case succinctly:

[A] vote to remain, whatever its motivation, will function in this context as a vote for a British establishment that has long channelled Washington’s demands into the Brussels negotiating chambers, scotching hopes for a ‘social Europe’ since the Single European Act of 1986… A Leave vote… would not bring about a new golden age of national sovereignty… But the knock-on effects of a leave vote could be largely positive: disarray, and probably a split, in the Conservative Party; preparations in Scotland for a new independence ballot.

And God knows, it’s hard to hold progressive views and not have one of Polly Toynbee’s famous clothes pegs over your nose as you approach the EU. [Update: Or to vote Remain through gritted teeth.] Peter Mair’s argument that the EU has the form of a democratic organisation but none of the substance is hard to argue with. The Lisbon Treaty, with all of the shenanigans involved, shifted the centre of gravity of the EU sharply towards neoliberalism and away from the social market; Germany’s imposition of ordoliberalism on the Eurozone and the brutal bullying of Greece was plain ugly.

The notion that the EU “needs to be taught a lesson”, put to me last week in a bar in France by a woman who said she’d vote Leave if she was British, has an obvious attraction.

But there’s something deeper going on, and that’s why I think that progressives have to vote Remain despite the EU’s evident problems.

The opening political window

After every financial crisis there’s a political crisis, and in the crisis there’s an open moment when change is possible, where the Overton window is blown wide open. We’re approaching that moment now.

And a bit more: as I’ve blogged elsewhere, we’re approaching the moment of a long values transition, when “postmaterialist values” become dominant in north America and Europe. Such transition points are always succeeded by a “last stand” of those who feel the world they know is being taken away from them, that they are strangers in their own land. This social and political “imaginary” is one of the views why views on immigration are much stronger in areas with little migration, and why attitude to identity is the strongest attitudinal predictor of attitudes to the EU.

The split has very clear demographics: on the one side, younger, better educated, more urban; on the other, older, less well-educated, less urban. The same split was seen recently in the knife-edge vote for the Austrian presidency, when postal votes from Austrians living abroad finally nudged the independent green into office ahead of the far right candidate.

The final “fuck you”

The social differences are captured by Populus in a couple of charts showing how Leave and Remain supporters index against the population as a whole. (Click on the image to expand it.) And these social profiles help us understand that the EU referendum has become a kind of referendum on globalisation and the Westminster elite, such that almost half of Leavers believe that the referendum result will be rigged to ensure that Remain wins.

For the UK, this division was caught, sharply, in a tweet.

A view on elderly Brexit voters from a former civil servant I was talking to last week. https://t.co/W3IJrggKkp—
Rick (@FlipChartRick) June 07, 2016

Political monsters

So progressives need to think about more than the EU as they weight their vote. I think it was Gary Younge who first crystallised this thought for me in the Nation, in a piece about America’s electoral politics:

One should vote for the largest immovable object in the path of the extreme right… But while defeating these forces at the polls is important, it is also insufficient. It does nothing to tackle the underlying causes for their popularity or address the grievances on which these parasites feed.

Yannis Varoufakis, writing in the Guardian a few days later, expressed the same thought in the context of Britain’s EU referendum,  more graphically:

The EU’s fragmentation will divide the continent in at least two parts, the major fault line running down the Rhine and across the Alps… Only political monsters will crawl out of this fault line, spreading xenophobic misanthropy everywhere and ensuring, through competitive devaluations, that you will also be drawn into the ensuing vortex.

Varoufakis was writing before the murder of Jo Cox, but was doubtless upset to get such immediate and such bloody vindication. I’m not going to go along here with the polite fiction that her killer had mental health problems; that will be for the courts to decide. When someone with quite a long history on the far right decides it’s OK to shoot and stab an MP whom he disagrees with, whatever their mental state, the faultline has already opened quite a long way.

Oh, England

And it was hard not to think, watching England football fans at work in Marseille (and let’s face it, they weren’t just the victims of Russian fans’ provocation) that the Brexit campaign had somehow lurched Britain back to the dark days of the 1970s, when the Anti-Nazi League and Rock Against Racism were formed in response to the presence of racists and fascists on the streets.

Anthony Barnett’s instant serialised book on the Open Democracy site goes a long way to trying to explain why this might be, as does a piece this week by the Irish journalist Fintan O’Toole. Heaven knows it must be depressing for Anthony Barnett to find himself in 2016 writing another version, 35 years on, of his Iron Britannia book from the Falklands War.

Barnett and O’Toole both see this problem as a problem for England, and not in the trivial sense of “English votes for English laws.” In his chapter on England–perhaps the best piece in an outstanding piece of political analysis Barnett writes:

If Brexit happens it will only be because a majority of English voters have lost confidence in the way they are governed. To focus on what this means, I’ll declare my interest. England is my country; I’d like it to come alive in a healthy way and don’t like to see it driven by UKIP. I am very conscious of the good people I know who are English in so many ways – one being that they deny their national identity any overt expression.

Ourselves alone

O’Toole writes of England stumbling into a kind of “accidental nationalism” through the EU referendum:

English nationalists can quite reasonably point out that many emerging nation states have even less experience of being a standalone, self-governing entity – my own country, Ireland, being an obvious example. The big difference is that other countries actually go through a process – often very long and difficult – of preparing themselves politically, culturally and emotionally for the scary business of being (to borrow a term from Irish nationalism) “ourselves alone”…

Successful national independence movements usually have five things going for them: a deep sense of grievance against the existing order; a reasonably clear (even if invented) idea of a distinctive national identity; a shared (albeit largely imaginary) narrative of the national past; a new elite-in-waiting; and a vision of a future society that will be better because it is self-governing. The English nationalism that underlies Brexit has, at best, one of these five assets.

In Scotland, before the failed independence referendum of 2014, Scotland had been testing arguments about independence since the Campaign for a Scottish Assembly in the ’70s, and the later Constitutional Convention.

The Leavers talk of “Britain”, but mean England. But their England is not a real England, but an imagined one, where Francis Drake is forever finishing his game of bowls on Plymouth Hoe and Prince Harry is summoning the ghost of St George to give courage on a French field. English nationalism might be a good idea–O’Toole suggests that it is inevitable–but wandering into it through the door of a referendum on a different subject and with our archaic and undemocratic political institutions intact isn’t likely to end well.

That #Brexit manifesto in Private Eye #VoteRemain #EUref https://t.co/QU1fjwvk6G—
Joe Public (@jpublik) June 22, 2016

(Private Eye)

Selfish players

In an op-ed article in the NYT, he spelt this out.

“Game theorists analyze negotiations as if they were split-a-pie games involving selfish players. … The trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives. In poker or blackjack this assumption is unproblematic. But in the current deliberations between our European partners and Greece’s new government, the whole point is to forge new motives. To fashion a fresh mind-set that transcends national divides, dissolves the creditor-debtor distinction in favor of a pan-European perspective, and places the common European good above petty politics, dogma that proves toxic if universalized, and an us-versus-them mind-set.”

As it happens, Bill O’Grady has done a game-theoretical analysis of the Syriza-Eurozone negotiations, and it’s easy to see why the “negotiations” are not going well. This is the pay-off table from Syriza’s side of the desk.

Source

Obviously in real life, there’s more complexity than this – there are degrees of “caving” or “holding”. And the numbers are just indicative. But the model helps to understand what the dynamics are. O’Grady:

Syriza believes that caving in to the EU will end its political movement before it really begins. Caving in produces the outcome of -100 in quadrants one and three. Thus, its only positive payoff is to press for restructuring at all costs, while the EU caves (quadrant two outcome). At the same time, we think Tsipras believes that the costs to the EU of caving to Syriza aren’t all that high, but a situation in which both parties hold (quadrant four outcome), which probably entails a Greek exit from the Eurozone, is devastating for the EU. … And, most importantly, Germany loses its single currency free-trade zone.

But from the other side of the table, the numbers look a lot different:

Source

So from the EU/Germany/ECB perspective, they expect Syriza to behave the way everyone else does in European negotiations, and also think that a Greek exit from the Eurozone is catastrophic for Greece but not for anyone else. (Which, is, incidentally, a high-stakes call.)

Bill O’Grady again:

From the troika’s perspective, a face-saving outcome in which both parties cave on some matters is the best outcome. They fully expect Syriza to take that option and believe the aggressive comments against extending the current deal or even more “extend and pretend” on debt is just political rhetoric for domestic consumption. Thus, the leaders of the EU keep looking for Syriza to signal a first quadrant outcome. They also believe that a Greek exit won’t be a big deal for the Eurozone but a catastrophe for Greece. … On the other hand, a quadrant two outcome, in which Greece holds and gets its way, while the EU caves, is good for Greece but terrible for the Eurozone. … The German reform effort will be over. Populist parties across Europe will use Syriza’s success to rebel against austerity and EU rules.

Bill’s article is excellent, by the way. It gives a good walking pace reminder of how game theory works, and then goes into some detail on the perspectives of the different actors. I’m not going to summarise it in any more detail, but do recommend that you go and look at the whole thing.

Red lines

Back to the NYT and Yanis Varoufakis, for whom “caving” in this situation is clearly a red line, because of the consequences for the people who elected Syriza to office.

I am often asked: What if the only way you can secure funding is to cross your red lines and accept measures that you consider to be part of the problem, rather than of its solution? Faithful to the principle that I have no right to bluff, my answer is: The lines that we have presented as red will not be crossed. Otherwise, they would not be truly red, but merely a bluff.

But what if this brings your people much pain? I am asked. Surely you must be bluffing.

The problem with this line of argument is that it presumes, along with game theory, that we live in a tyranny of consequences. That there are no circumstances when we must do what is right not as a strategy but simply because it is … right.

There are patterns to politics. A financial crisis typically generates a political crisis, in which the parties that emerge are those who either change their ground or are new parties with new interests. Changing ground, as I have discussed here before in the context of the UK Conservative party, can work well short-term but store up problems for the future.

Shock of the new

The Labour Party’s emergence into power in 1945, after a brief false start in 1929, is maybe a more interesting analogy. A whole lot of ministers came into government for the first time (some had served in the unelected wartime coalition) from different backgrounds and few assumptions about the way that “government” was done. Nye Bevan had left school at 13 and came into politics through the Miners’ Union; Ernest Bevin had been the first General Secretary of the Transport and General Workers Union. They wanted to make a change.

And one of the refreshing things about Syriza, so far, is that it has thrown into positions of political power people who haven’t spent years learning how to play the “corridors of power” games that get politicians such a bad name. (This is, incidentally, one of the reasons why having politicians who have never had work outside of politics is so corrosive.)  They are ‘new’ politicians who are foolish enough to believe that the purpose of being in power is to make a difference. In doing this, they are playing the role of the small boy who points out that the king is in the altogether.

Experts and governments

And the European Union is exactly the worst place in the world to go around pointing this kind of thing out. As Peter Mair argued in his book Ruling The Void, the whole set of institutions of the EU have been designed to ensure that it has the form of a political organisation, but none of the function. There’s a reason why the MEPs have almost no power. Here’s part of Wolfgang Streeck’s review in New Left Review:

Mair’s Exhibit A of a political system of de-politicized expert ‘governance’, specifically constructed to exclude parties, popular democracy and, with them, redistributive politics, is, of course, the European Union, as analysed in the book’s final chapter. … As Mair points out, referencing Robert Dahl’s reflections on opposition, ‘we are afforded the right to be represented in Europe, even if it is sometimes difficult to work out when and how this representative link functions; but we are not afforded the right to organize opposition within the European polity.’

In other words Syriza represents a conceptual challenge to the EU, which has been designed to be ruled, or perhaps managed, as a faux-political space where opposition is squeezed out by a technocracy. And so you get, of course, the kind of games that went on this week, where a draft communique acceptable to Greece is suddenly swapped out for one that was clearly inflammatory (and then there are complaints that these get leaked!)

Both sides, in other words, think the other is making a category error. And this is the other reason why game theory doesn’t work. In game theory, both sides have to be playing the same game.

The image at the top of the post is Heath Robinson’s illustration of the king trying on his new suit of clothes, ans is used with thanks.

It’s impossible to tell how the stand-off between Syriza, Germany, and the ECB will turn out, and events are shifting daily. But some of the thinking in a Futures Company Future Perspective I co-wrote with the journalist and analyst Matthew Lynn on The Future of the Eurozone helps make sense of the situation. It was published in 2012. It’s clear from re-reading our analysis from then that Syriza, and Greece, holds more cards than many people think it does.

The Future Perspective observed that financial crises are a routine feature of market economies, and followed familiar patterns. “This time” is never different. A diagram outlined the tensions that framed responses to a debt crisis.

The first observation is that in Greece it has taken quite a long time, and some astonishingly adverse social and economic outcomes, for the political dimension at the bottom of the diagram to push its way to the forefront. This is partly because Greece’s mainstream parties chose to align themselves with austerity programmes, as they did elsewhere in Europe. But perhaps we should be surprised instead by the speed at which an opposition party from way outside of the mainstream has come to power: historically, such shifts take a generation or more, not a decade. Podemos in Spain, and Sinn Fein in Ireland, could follow.

Partners in growth

The second is that bondholders always want to be repaid in full, but that’s not normally what happens in the wake of a financial crisis. As it happens, almost all of the Greek debt went on repaying risky loans the German banks made to Greece – and now it’s largely held by other European governments. But cleverly, the proposals constructed by Yanis Varoufakis focus on two things: (a) reducing the annual repayments (but not removing them) and (b) linking repayment to growth. As he said on the Today programme before he became Finance Minister, “We want the Germans to be partners in our recovery, not our misery.” Just to underline the point: there’s no proposal here for any debt write-off.

The third is that all financial crises are a systemic problem, not a national problem, and this is no exception. (Michael Pettis has a brilliant long essay about this). As Matthew Klein noted in the Financial Times:

[I]t makes no sense to blame the recipients of the capital inflows for causing the crisis. If enough money is sloshing around willing to invest in any stupid idea, you shouldn’t be too surprised that a lot of stupid ideas get funded. … It’s logically impossible for excess borrowing to occur unless there is someone sufficiently reckless (or stupid) to provide the financing.

German public opinion seems to think that Greece should pay its debts or leave the Euro, but departure would not be orderly. Departure has short-run costs, but the pain might also be quite short-lived for Greece. While unemployment remains debilitating, at 27%, its economy is now growing, from a low base, and it has a budget surplus and a trade surplus. (Unlike the UK, for example). In other words, as well as political support, it has a bit of economic breathing space; it’s not come to power in a economic crisis. Returning to the drachma could work well, even if Syriza says it won’t take that step. One of our Eurozone scenarios also envisaged countries using the Euro as a trade currency and a local currency (or currencies) to give it a degree of internal flexibility.

Currency manipulation

Germany should also be concerned about the possibility of Greece leaving the Eurozone. The short-term reason is that if Greece goes, other countries could follow, quickly. Germany does very well out of the Eurozone, both economically and diplomatically, as John Aziz has observed. And even if Greece left on its own, in the medium term a Greek recovery outside of the Eurozone would send a strong signal to other economies in Europe suffering from the deflation that’s been imposed by the policies of the European Central Bank.

Alan Kohler, a business columnist on The Australian, argued that it would be good for Greece to leave the Euro – but he didn’t think the Germans would let them.

So, while it’s true that if Greece returned to the drachma it would be excluded from capital markets for a while, it really would only be for a while.

In the meantime, there would be long queues of tourists at Athens Airport and crowding onto ferries into the Aegean Sea. Tourism would soar, as would its shipping industry, along with the flowering of a thousand export industries. …

Of course, the question is whether Germany would actually let Greece exit the eurozone, and the answer is definitely “Nein!”

Germany needs Greece (and Italy and Spain) inside the euro to keep the currency down. In a way, the existence of the eurozone is a form of currency manipulation by Germany that’s every bit as direct and effective as China’s peg to the US dollar.

The failing Eurozone

But the obsession with Greece can also be read as part of a “look over there!” strategy designed to distract from the actual dynamics of the Eurozone crisis.

Greece is a tiny economy (around 1% of the size of the Eurozone), and its problems are a hill of beans compared to the problems of a stagnating Eurozone which has already teetered into deflation. President Obama and the Bank of England Governor Mark Carney are not urging a change in Eurozone policy because they have suddenly become radicalised, but because they are concerned about weak demand in the Eurozone, and the consequences of that for the global economy, which is currently flying on only one engine.

Beyond that, the whole European project could be jeopardised if it doesn’t create a better economic deal for its citizens – just as the austerity policies of Weimar-era Chancellor Brüning paved the way for the surge in support for Hitler. (And hence the reference to Golden Dawn by Greece’s new Finance Minister Yanis Varoufakis in his news conference with his German counterpart Wolfgang Schäuble.) Certainly the financial markets seem less concerned about Greece and more concerned about the “Japanisation” of Germany – the long-term low-growth/deflationary combination that financial intervention such as the ECB’s quantitative easing programme is unlikely to shift.

Protecting the finance sector

In his excellent essay on the Eurozone crisis, Michael Pettis has this to say:

[I]f you separate those who benefitted the most from European policies before the crisis from those who benefitted the least, … it might be far more accurate to posit a conflict between the business and financial elite on one side (along with EU officials) and workers and middle class savers on the other. This is a conflict among economic groups, in other words, and not a national conflict.

In short, then, Germany has since the financial crisis protected the interests of Europe’s financial sector (and the German financial sector), at the expense of the interests of the European economy (and the Germany economy). To a significant extent the election of Syriza has brought this political and economic problem into sharp relief.

One way of understanding this aspect of the issue is by looking at Germany’s labour productivity growth since 1998, data from the OECD via the Financial Times. It’s at the bottom end of the OECD class: even behind Greece.

Game theory

So Germany needs to find a way to re-start the European economy, and it will continue to get political and diplomatic pressure from its allies until it does so. That’s one of the reasons why Syriza’s election was fairly warmly received in many parts of Europe. But it wants to do it in a way that doesn’t encourage anti-austerity parties in other parts of the Eurozone’s periphery. And whatever it does, Germany has to make sure that it doesn’t lose face.

In other words, the game doesn’t stack up. But just to make it more complex, there seems to be no straightforward way to get a country to leave the Eurozone – even if they don’t comply with the terms of membership. When you look at this complexity, you can see why Yanis Varoufakis wrote, at the time of Greece’s 2012 elections, that

starting the ball rolling in the right direction [on debt] requires a government in Athens that is capable of looking our German partners in the eye and not blinking for a few minutes.

In other words, this might be just the right moment for Greece to have a finance minister who understands both economics and game theory.

Not blinking

And it’s worth spelling this out a bit. On my reading, “not blinking” is why Greece didn’t respond when the ECB announced (probably unconstitutionally) that it wan’t going to extend Greek bank financing. It’s why Varoufakis turned up in Berlin to listen, good-humouredly, to Wolfgang Schäuble “talking nonsense“, as the FT put it.It’s why the Euro-talks tonight [11th February] won’t be conclusive. And it’s why Syriza staged the theatre of a “confidence vote” a fortnight after being elected.

But: if Greece is going to get forced out of the Euro by Germany and the Troika, Syriza’s leadership is going to make absolutely certain that Germany pays a high price in terms of its political and diplomatic credibilty, and that the self-interested nature of its management of the Eurozone – and the interests for whom the Eurozone is managed – is made absolutely explicit. [Update: Frédéric Lordon spells out what this looks like for the ECB.]

In other words, their version of the “game” is to make the politics of the Eurozone crisis visible to the naked eye, to move it out of the world of legal and financial discourse about “commitments” and contracts.”

When Matthew Lynn and I wrote the Future Perspective on the Eurozone in 2012 – which, it turns out, is still a good guide – we weren’t sure if the Eurozone would hold. A few months later, the ECB’s Mario Draghi said the central bank would do “whatever it takes” to preserve the Euro. We’re at another crisis moment. But this time we’ve moved from the financial crisis to the political crisis. Political crises are always more dangerous.

A version of this post has also appeared on The Futures Company’s blog. The picture of Yanis Varoufakis is used courtesy of Open Democracy, whose profile of the Greek Finance Minister is recommended.