Greece’s
creditors hope that by unleashing chaos, they can bring the country
to its knees ahead of Sunday's referendum. Greeks must not give in
by
Philippe Legrain
If the Greek
government thinks it should hold a referendum, it should hold a
referendum. Maybe it would even be the right measure to let the Greek
people decide whether they’re ready to accept what needs to be
done.” Fine words from Germany’s finance minister, Wolfgang
Schäuble, on May 11. Yet on June 26, when prime minister Alexis
Tsipras duly announced a referendum on whether the Greek government
should accept its creditors’ highly unsatisfactory final offer,
Schäuble and other eurozone finance ministers reacted very
differently. They cut off negotiations with Athens, sabotaged the
referendum, and set Greece on a course for capital controls, default,
and potentially even euro exit. Democracy? What’s that?
The
creditors have tried to blame Tsipras for the breakdown in
negotiations. But it was their stubborn refusal to offer an insolvent
Greece the debt relief that its depressed economy desperately needs
to recover which backed Tsipras into a corner. In exchange for a
short-lived infusion of cash, they were insisting on years of
grinding austerity dressed up as “reforms”, as I explained
previously. With rapacious creditors intent on pillaging the
impoverished Greek economy, Tsipras could scarcely agree to their
terms. So he gave Greeks themselves a say, while rightly urging them
to vote No.
Ironically,
the exaggerated fear of Grexit and the emotional association, even
after five years of debt bondage, between euro membership and being
part of modern Europe might well have led Greeks to vote Yes to the
creditors’ iniquitous terms. But eurozone authorities are so
terrified of voters that they have sought to deny Greeks a say. They
rejected the Greek government’s request to extend the current EU
loan program for a month beyond its expiry on June 30. So, if and
when Greeks vote on July 5, the program will have expired, and with
it the creditors’ offer on which they will be casting their
ballots. It would be funny if it weren’t so sad.
Many twists
and turns can happen between now and then. Negotiations may resume.
Decisions can be reversed, compromises brokered. Nobody knows how the
standoff between Greece and its creditors is ultimately going to be
resolved.
In the
meantime, the creditors continue to ratchet up the pressure.
Following on from the refusal to extend the EU loan program, the
European Central Bank (ECB) on June 28 decided not to provide Greek
banks with any additional emergency liquidity to cover cash
withdrawals, which have gathered pace over the weekend. That
political move forced the Greek government to declare a bank holiday
on Monday to prevent a run that would cause the Greek banking system
to collapse, along with capital controls to prevent euros draining
out of the Greek economy.
On Tuesday,
when the EU loan program expires, and with it the 7.2 billion euros
outstanding and other moneys long promised to Greece but not
delivered, Greece is likely to default on a 1.5 billion euro payment
due to the International Monetary Fund. Being in arrears to the IMF
is regrettable, but not fatal. For its part, the Fund shouldn’t
have bent its rules to lend exceptional amounts to an insolvent
Greece.
The
creditors’ aim is clear: to force Greeks to their knees. A week
without access to a bank account and the prospect of Grexit may spur
them to vote Yes in the referendum. Tsipras says that he would then
sign up to the creditors’ demands. But the creditors insist that
they could not trust the government to implement the terms of the
agreement. Their real agenda, then, is forcing a change of
government.
The
creditors have form. In November 2011, when the elected prime
minister of Greece, a moderate social democrat, proposed a referendum
on the EU-IMF loan program, eurozone authorities orchestrated his
replacement by a more pliable, unelected technocrat.
Greeks
should not be bowed by this “gunboat diplomacy,” to use Karl
Whelan’s words. Over the coming week, Tsipras and his team need to
prepare plans for coping with default, including the introduction of
a parallel currency that could subsequently become a new drachma.
There is a chance that a resounding No vote in the referendum will
bring the creditors to their senses. But if it doesn’t, default on
the 3.5 billion euros due to the ECB on July 20 and leaving the euro
is better than debt bondage.
Grexit would
be painful initially. But by forcing the Greek government to curtail
bank withdrawals and control capital outflows now, the creditors are
frontloading some of its costs, making the additional pain of leaving
smaller. Freed of debt, with a cheaper currency, and with greater
policy freedom, the Greek economy would soon recover. Argentina’s
started growing again only a year after quitting its currency board
with the US dollar in 2001. And if the Greek government continued to
service its private debts, it would soon regain market access. The
country’s future prospects would then depend on how well (or badly)
it was governed. Let the Greek government and the Greek people be
responsible for that.
A key motive
for creating the euro was to reassert political control over the
“tyranny” of markets. But the hijack of eurozone institutions by
narrow-minded creditors is proving far more tyrannical than earlier
currency crises ever were. The beautiful European ideal of peace,
prosperity, and democracy has given way to brutal power politics.
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