Saturday, July 04, 2015

'Europe' and 'Exit' are Words Invented by the Greeks....

...while "Grexit" and "Euro" are neologisms for which they bear no blame nor have any interest.

Explaining the referendum to be held tomorrow for the Greek voters is complicated, comparable to the games being played recently in Congress with the fast-track proposal for the trade deals.  On its surface, the Greeks are asked to approve (with a 'yes' vote) the final terms offered by the creditors to the Greek government, or (with a 'no' vote) to refuse them.  But a 'yes' is not quite a 'yes' to those terms, nor is a 'no' necessarily a refusal of an agreement to terms very much like them. The referendum itself is of questionable legality; it probably would not be binding on the Greek government, and certainly not on the creditors.  It should be viewed as a plebiscite, very much like a confidence vote on the Greek government's handling of the crisis.

Greek Prime Minister Tsipras has said he and his government would resign if the vote goes in favor of the proposition--that is, to accept the final offer of the creditors. Given that, I cannot agree with the argument, which I have heard, that Tsipras' best hope is for a 'yes' vote, which would (according to that logic) empower his government to agree to terms and settle the crisis. He, though, has been clear in his appeal to the Greek people:  vote 'no' if you are with us.

Despite the appeal to national pride in Tsipras' call for the referendum and the popular victory that his party won just a few months ago, it is by no means certain that Tsipras' side will prevail in the referendum.  For one thing, though it won a parliamentary victory as the leading party,  his Syriza party had less than 40% of the votes, and its unity has been strained by the turmoil.

A 'yes' vote would presumably lead to the fall of the government, though it is unclear what would replace it.  It is also unclear whether the terms offered by the creditors would still be on offer, as the Greek government has defaulted since then on a massive payment due to the International Monetary Fund.  The terms of surrender--acceptance of continued "austerity" in the government budget-- might be even more disadvantageous, and those on offer were bad enough for the prospects of the Greek economy.

Syriza's appeal, beyond its strong base among the youth, would be specifically to pensioners, or those near to retirement age.  The terms which ultimately caused the failure of the talks were on the restructuring of pensions:  Syriza sought to defend the pensions from further cuts, while agreeing to some reforms (such as eligibility criteria).  Like several other European societies, retirees are a large and growing portion of the Greek populace.

The Greek voters have only the choice between bad outcomes--to simplify, 'yes' would lead to depression, and 'no' to economic chaos, as Greece's continued participation in the Eurozone is now in serious doubt.  Withdrawal from the euro and reintroduction of the drachma would be painful in any case, but could be catastrophic if it were sudden and not properly planned.  In particular, those who have any wealth in Greek banks or investments would likely suffer huge losses from the revaluation of assets, while productive investment could be hampered for decades.

The Greek government insists that a 'no' vote will empower it to re-negotiate terms of refinancing its debts--its leaders do not have the declared intention, as yet, to withdraw from the euro or from the European Community.  I do not see this outcome as likely, though.  It should have been possible for an agreement to have been reached, considering the costs to either side of failure (presumably, continued Greek defaults will cost European creditors, which are now mostly governments, billions). The failure occurred because both sides considered their own positions to be strong, and thus they did not need to make the necessary concessions.  These conditions will still seem to be true (barring a majority vote for 'yes', i.e. surrender to the dictated terms), whether or not it will be the case. A 'no' vote is not going to change the creditors' minds; it would only convince them that the Greeks are not worthy of their forbearance and that economic divorce is inevitable.

My counsel, under the circumstances, would be for the Greek voter to vote 'no', accepting the possible exit from the Euro (which Greece should never have been allowed to enter, in the first place).  The Greek government would remain in place, and it would then have a series of tasks to work through: to plan a progressive exit from the Euro along with the reintroduction of the drachma in an orderly fashion, and to negotiate the terms of continuance within the European Union, on a basis similar to that enjoyed by several other countries in the EU that have retained their national currencies and a greater degree of control over their domestic economies (such as Great Britain and Sweden).  

I expect that will be possible, in spite of the fact that the Greek government will be sorely tempted to continue to come up short on payments to their European creditors, unless they are granted some relief. The longer-run issue will be whether the Greek disease will be contained, and not spread to other Southern European economies, and whether the stress on the Euro will have major downstream effects on the Eurozone and on the EU as a whole.  Meanwhile, Greece's message to Europe is that the Euro operation is being run for the benefit of the Germans (and possibly a few others), but not for the general benefit of Europeans, and that is a message that will resonate in a number of other countries.

1 comment:

Chin Shih Tang said...

July 7: I salute the Greek voters' bravery in selecting possible chaos over certain austerity and recession. I think my analysis of the post-no situation has largely been borne out, so far, and I still think it would be logical for Europe to come to agreement with Greece. It will happen if and only if Chancellor Merkel wants it, I have decided. Much as she would like someone else to be the face of eventual blame, it would be hers if she chooses to go the hard way.

Speaking of Greek-type universal words, here ( is a cnbc post that spells the process of converting to drachmas first as "drachmazation" and then as "drachmaization". There is no doubt--the correct English term should be "drachmatization". Not to overdramatize...