Negotiation strategy – bluffing, head-on truck crashes, and Greek bailouts

The Greek economic crisis is providing a fascinating example of negotiation strategy and tactics in action. Forgetting for a moment the terrible situation faced by the Greek people, the pure negotiation dynamics are complex and interesting to anyone who has experience of major negotiations in any context.

The Greek political party Syriza are the reason why Greece has not been able to put a coalition government together to support the austerity measures. Syriza advocate a relaxation of the austerity measures – yet want to stay in the Euro. Most commentators (including me) think this is impossible. If they don’t want austerity, they will have to default and leave the Euro. (Austerity may of course still follow!)

But Alexis Tsipras, the Syriza leader, is gambling that when it comes to the crunch, Germany and other European partners will back down. Rather than risk a Greek exit, and everything that might follow, they will relax the terms of the bailout agreements, and let Greece off the hook while remaining in the Euro.

In negotiation terms we have the classic “parties miles apart, no apparent room for compromise” situation, with both sides laying out the dire consequences if the other party does not back down and give way. Is there room in the middle for a negotiated settlement? Possibly, but really any relaxation of the austerity conditions will look like a defeat for Germany, so I certainly can’t see a comfortable “win:win” zone in the midst of this negotiation battlefield.

When it comes to the crunch, is either party bluffing? This also resembles the classic game theory problem.  Two large trucks are hurtling down a single track road towards each other.  The one who pulls off the road risks a puncture, overturning their vehicle or worse. The other would continue quite happily. But if neither give way, they crash and both die. What do you do as a truck driver? Give way, or hope the other driver does?

There are pretty common negotiation parallels in the procurement and business world. “If you push that price increase through, we’ll stop all our purchases from you”.  That’s not an uncommon situation – but is there room for compromise? Or are you two speeding trucks? Are you testing their resolve, or would you really carry it through?

Pay that overdue invoice or we’ll stop supplying you” – a similar situation. Generally, you should feel confident that you can carry through your threats – but sometimes you might just choose to bluff and hope the other party blinks first!

Remember the film "Duel"?

Now here’s a twist on it – let’s go back to our trucks. As you get closer, you see the other driver remove his steering wheel and throw it out of the window. NOW what do you do?? Apart from panic. the game theory answer is, I believe, now you must pull off the road.

It’s interesting that neither party in the Greek debate  has quite thrown their steering wheel out of the window yet. If Tsipras were to say, “I promise on all I hold dear that if you don’t relax the austerity terms, then we will pull out of the Euro - so be it”, that would be throwing the wheel out. Germany and the others would know he was serious and could then choose whether to pull off the road – give way – or carry on, and risk the potential huge collision, and the chance of the Euro really falling apart.

I wonder. I think Tsipras genuinely believes Germany will back down. But if they don’t, the danger is that by the time he realises, it’s too late to stop or change direction. We have the head-on crash.  And if we see a run on Greek (and maybe Spanish) banks this week, that might just make it too late anyway.

(Incidentally, I’m astonished that anyone in Greece still has money in Greek banks. Just not worth the risk. German bonds, gold, claret, dollars.. whatever).   

Voices (4)

  1. Plan Bee:

    Greece leaving the Euro leaves them back where they were 20 years ago, a country generally poorer than their Western European near neighbours. They had no right to be as well off and rich as France or Belgium, and made no efforts or sacrifices to get the last 10 years of realtive prosperity.

    The slide down the mountain will painful, but it will stop. They have a resource that people willcontinue to pay for even if they have upset many of their trading partners, namely sun and beaches. They will once again be a cheap holiday location, people will flock there.

    We all know there is no such thing as a free lunch. If the Greeks want a standard of living that approaches France, they need to work longer, retire later, pay taxes. Just like the rest of us

  2. bitter and twisted:

    The Greeks arent bluffing. Leaving the Euro is better for them than staying in it (unless heavily subsidized).

  3. RJ:

    In poker and gambling in general, I always thought that the generally-accepted rational philosophy was only to gamble what you can afford to lose. In this instance, however, I get the impression that many of the Greek population feel that there is nothing left to lose.

    Unfortunately, although I’m no great fan of austerity, I fear that they’re wrong and that they still have depths to reach and that the truck crash scenario will leave them sliding down the mountainside for many years to come.

  4. John:

    The big risk with bluffing is that if situation becomes competitive, the other party might decide that they aren’t going to allow themselves to be pushed around. They may stop thinking rationally and, instead, allow their ego to take charge.

    The law of reciprocation is a constant in negotiation. The rational answer to your game theory problem is to pull off the road. But when egos take charge you might just a see an irrational outcome, where the second driver rips the wheel of his truck and throws it out of the window too.

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