To force a
Greek exit, the euro area will need to cut off Greek banks -- there is no
mechanism to expel a country
Greek referendum wasn�t what you think
Marc Champion
The thumping win for Greek Prime Minister Alexis Tsipras in Sundays referendum is being celebrated as a moment of clarity -- by core supporters of Tsiprass Syriza-led government in Athens and by hawks in Europe. But almost all the assumptions on which the two groups make the claim are false.
The first of these is that Greek voters have made it clear what they want. No, they havent. This referendum is best described as an act of political felony. The government asked a question about two complex documents that amounted to: Would you like to feel less financial pain? This is a question that should never be put to a vote. Then the government sold an affirmative answer to that question as a route to reopen the banks, win a mandate that would force debt relief and keep the euro. What a shock: Voters said theyd like to feel less pain.
Nor have Greeks made it clear they arent prepared to do what it takes to remain in the euro. The vast majority of Greeks still say they want to keep the currency, and if they had been asked to choose between that and the bailout terms, the result might well have been different. Thats the clarifying referendum Greece should have had in 2011, or indeed a month ago. Now its too late, and many in the euro area will see this as an opportune moment to cut Greece loose.
Another assumption is that Greeks will be better off once theyre free of the euro, because they can finally devalue and export their way to growth. I doubt that very much, although I sincerely hope Im wrong. This country got in trouble because its economy was inefficient and its governing elites, either corrupt or incompetent. Those conditions remain the same.
fter Greek voters overwhelmingly rejected proposals by Greeces international creditors (which are no longer on the table), the endless charade of bailout talks looks set to resume. Tonight, German Chancellor Angela Merkel and French President Francois Hollande are meeting to discuss strategy, and tomorrow a European Union summit will take on Greece again. A number of European leaders have signaled their willingness to keep talking. Italian Prime Minister Matteo Renzi said in a Facebook post that tomorrows summit
must show the definitive path toward resolving the crisis. Spains economy minister Luis de Guindos said his country was open to talks on a new bailout for Greece. The Europeans want
Greek Prime Minister Alexis Tsipras to put forward a new proposal, and he probably will -- hes never failed to produce new documents that have often proved meaningless.
In any case, yesterdays referendum is already looking like a waste of time: The euros exchange rates and European bonds have barely reacted to the outcome, and the markets resilience undermines Tsiprass negotiating position even if the vote has nominally strengthened it. While acting defiant to his domestic audience, Tsipras asked Finance Minister Yanis Varoufakis to resign so as not to irritate the creditors. At the same time, he wants the whole world to know hes talking to Russian President Vladimir Putin -- perhaps as a plan B. In other words, its almost business as usual, except Greek ATMs are now unable to dispense even the 60 euros a day allowed under the countrys capital controls. If the European Central Bank extends the emergency financing of Greek banks, talks can start dragging on again, to the gentle hum of apocalyptic rhetoric about last chances and historic decisions.
The euro area is likewise assumed to be better off without Greece. I suspect this may well be true for the moment. In the long term, though, what happens next may be deeply damaging. To force a Greek exit, the euro area will need to cut off Greek banks -- there is no mechanism to expel a country. Then, unless Tsipras accepts bailout terms he has been resisting, his country would be so starved of cash it would have to print its own.
The result would be a bitterly resentful nation that believes it was first driven to penury and then deliberately forced into collapse by its supposed partners in Europe. The country would also be politically unstable, run for now by neo-Marxists, but probably soon by someone else. Bloomberg View columnist Mohamed El-Erian this morning warns of the potential for a failed state, and I dont think that is hyperbole.
The final false assumption about whats ahead is that Russia cant afford to bail Greece out and thus replace the EU as its primary ally. Russia has never had the slightest motivation to bail Greece out -- its interest lies merely in seeing Greece outside the euro. So long as Greece was getting handouts to honor its debts and sharing a currency with Germany, its interests would always be hardwired to Berlin, Brussels and the U.S.-based International Monetary Fund, not Moscow. Once Greece has defaulted and returned to the drachma, those cords are cut. Russia has more than enough money to make a penurious Greece financially and politically dependent. Its already signed a potential pipeline deal with Tsipras. The suggestion by Russias deputy finance minister that Greeks might accept rubles from Russian tourists might soon not seem laughable.
Greece is the anchor state of the Balkans, a region prone to conflict whose geopolitical future remains in post-communist-bloc transition. It has unresolved territorial disputes with Turkey and is one of the primary access routes for illegal immigrants to the EU.
Theres a reason U.S. President Harry Truman requisitioned $400 million ($4.2 billion in todays money) to keep Greece in the democratic camp, and developed the doctrine of the Cold War to justify it. That reason seems to have been forgotten.
The handling of the Greek debt crisis has been a disaster. Sundays referendum has only added to the litany of bad decisions. And now, unfortunately, youd have to be an inveterate optimist to expect a good outcome.
Bloomberg
