No matter the vote, more pain for Greece
Greece is supposed to pay the International Monetary Fund (IMF) almost 1.6-billion euros by next weekend. It will almost certainly miss that payment. Its hopes of securing an extension of bailout funding from the IMF, European Union and European Central Bank are nearing zero. That mark will be hit unless Greece and its creditors somehow snatch resolution from the jaws of debacle.
Probably, perhaps certainly, they won’t.
If the failure of last-ditch talks last week didn’t see to that, then Greek Prime Minister Alex Tsipras’s surprise announcement that he would hold a referendum next weekend on the creditors’ draft proposal did.
In the meantime, Greeks are voting with their debit cards, and you can’t blame them. They’ve been doing it for days now, lining up at ATMs to get cash out in case the banks don’t open on Monday. And then on Sunday, Greece announced that the bank doors would indeed be closed the next day. Smart Greeks.
You can see what Tsipras is thinking, though. A referendum could be a master stroke in domestic politics. If Greeks vote “yes” to the creditors’ proposal, Tsipras will have political cover to basically renege on the promises he made to get elected back in January. (You know, securing debt forgiveness, protecting pensions, telling creditors to stuff it, etc.) If Greeks vote “no,” he gets to honour those promises by defaulting on payments and maybe even pulling out of the eurozone, which would allow the adoption and devaluation of a new currency.
The creditors are clearly miffed. Even with a “yes” vote, it’s not clear that they will care to go back to the table for more talks that will go nowhere. They don’t trust Tsipras. They’ve already refused to grant a few more days of bailout funding long enough for him to hold his domestic gut-check.
Tsipras is expected to present his populace with the creditors’ draft proposal, which was never intended to be the subject of a referendum. The EU did release it last week, though, and the three-page document — remarkably brief, considering the huge bureaucracies involved — doesn’t offer much for the layperson to like, let alone understand. On the other hand, for all the griping Tsipras and his supporters have made about the creditors’ cruel and unusual austerity demands, there are plenty of good ideas in the proposal.
One is that Greece reforms its tax administration, which is notoriously bad at collecting taxes. Another is to open restricted professions — Greece has tons of them, like engineers, notaries public, actuaries and bailiffs — and liberalize tourist markets. Oh, and while they’re at it, the creditors are calling for an end to the huge fuel subsidies enjoyed by Greek farmers and tighten the definition of “farmer” for tax purposes (farmers get preferential tax treatment).
But, of course, the details won’t matter much. The question will really come down to whether Greeks think staying in the eurozone is worth feeling even more pain than they already have after five years of austerity. The alternative isn’t much better, and maybe even worse: Grexit, rampant inflation, high unemployment, an inability to access debt markets.
With or without the euro, Greeks are going to feel more pain. The choice is between the pain of welfare dependency, with a provider who will always want to shrink the dole, or the pain of inflating your way out of debt.
There might be a middle way, like Greece pegging the revenant drach-
We can expect more social unrest
ma to the euro or the greenback, but one has to wonder whether Tsipras and his hard-left Syriza government wouldn’t find the inflation option more tempting, given his dug-in position so far.
Still, unless an option to Grexit is invented, the economic crisis in Greece — which is already in recession, and where the economy has shrunk by 25 per cent in the past five years — is going to deepen. We can expect more social unrest in the birthplace of democracy. And that might have spillover effects that go beyond economic policy, or anything Tsipras or the EU can control.
Will Greeks’ pain become Europe’s — and the world’s? So far, European and North American stock markets have been greeting all this with a sigh and a yawn. The STOXX 60 actually closed up last week, as investors seem to have concluded that the fallout of a Grexit has already been priced into markets.
They might have to think again.