Last week I made a prediction that went against the media pack consensus, when I wrote on July 1 that the Greeks would vote “no” in last Sunday’s referendum. The banks had been closed for a week, cash withdrawals were limited to 60 euros ($66) a day, and they still did it.
My assessment was based on the fact that the bailout package on offer was structurally unsound. It demanded further drastic belt-tightening from a nation that has seen its GDP drop by 26% over the past five years of strict compliance with the Troika’s (IMF-ECB-EC) stringent demands, with unemployment soaring to 25% and over one-half of under-25s out of work.
Contrary to the mainstream analysts’ prevalent view that a “no” vote would be an unreasonable act of defiance in the face of fiscal reality, I expected most Greeks to say “no” exactly because they are rational. The overwhelming result (61% “no,” 39% “yes”) indicates that the winning camp included many people who are not necessarily supportive of prime minister Tsipras or his left-wing Syriza party. Many “no” voters are not leftist radicals. They want to stay in the eurozone and accept the need for further painful measures, but they understood that the medicine administered thus far – and offered for the future – is reminiscent of the doctors of yore who killed George Washington by excessive bleeding.
My second prediction, that there will be a deal with the Troika after all, is also looking more likely after the referendum. The resignation of finance minister Yanis Varoufakis – considered the impossibly uncooperative bête noire in Washington and Brussels – on Monday, and Tsipras’s reaching out to the opposition on the same day in the hope of developing a broad national consensus on Greece’s negotiating position, indicate that he will treat Sunday’s resounding victory as a mandate to work out some sort of compromise, not to head for outright default and an early exit from the eurozone.
I predict that in the next few days some eurozone leaders – notably France’s Hollande – will ask Angela Merkel to moderate her stand and agree to extend loan-maturity deadlines and to convert Greece’s floating-rate liabilities into fixed-rate debt. That would be a long-overdue gesture of good will which would not violate her insistence that there will be no write-offs – and Tsipras could show the nation that seeking a compromise does pay dividends, after all. The creditors’ resistance to softening their terms remains high, but the Greek government has the advantage of invoking the atomic option – a minus-sum game par excellence – if the German nein continues to mean nein.
Some traction is needed very soon, because on July 20 Greece needs to pay 3.5 billion euros on a bond held by the European Central Bank. The failure to make that payment could prompt the ECB to terminate emergency credit, which would immediately collapse the country’s banking system. That would mean bankruptcy, period. If there is no deal with creditors to refloat the banks, the Greek government would need to print an alternative monetary instrument to make up for the euros it does not have.
Greece’s mess is the result of irresponsible lending as well as profligate spending. Holding only one party in the equation guilty for the resulting imbroglio is futile, and a mistake. Greece needs to reform her economy, to cut bureaucracy, to curtail her Ludite trade unions’ power, and to collect taxes more efficiently. None of that makes sense, however, under the conditions of zero growth and zero hope.
I stand by my assessment that in the long term it would be better for Greece, and for the rest of the eurozone, if she were to revert to the drachma which can be devalued and whose interest rate can be determined in accordance with the country’s concrete circumstances. Issuing a parallel currency, a form of governmental IOUs, would be a reasonable first step if Berlin and Frankfurt remain intransigent.
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