NO VOTE SPELLS TROUBLE FOR TSIPRAS
Norman Lamont ALEXIS Tsipras has scored a remarkable result in the Greek referendum. Few predicted victory on this scale. Some will say the referendum solves nothing but he has strengthened his mandate and won the backing of many Greeks who did not support him in the general election.
It is the worst possible result for Angela Merkel and François Hollande. It could lead to the unravelling of the euro and it has implications for the future of “project Europe”.
The eurozone needs to pay attention to this result. The normal reaction of the EU to referenda is to ask for them to be re-run until the right result is obtained. But this crisis is the most serious yet and cannot be brushed aside.
Most of the British media have been severely critical of Tsipras’s Syriza party and how it has conducted itself. Syriza does have some wrong-headed policies, and it has sometimes been inept tactically as well as on other occasions being gratuitously offensive. But it has also had a point and the eurozone and the IMF have made some very big mistakes too.
There should have been a bigger debt write - off in 2010, as the IMF now acknowledges. To recognise this is not to be soft but to be realistic. Greece’s debt cannot be repaid and will not be repaid. This inconvenient truth has been concealed from voters in Germany who would be very cross if they re al i s ed there would be repeated “extend and pretend” provisions in the bailouts. Furthermore, the austerity demanded became completely counterproductive, making it more difficult to pay off debt as the Greek economy fell through the floor.
It is a famous victory but the outcome of the referendum poses problems for Tsipras, who has given the impression that the crisis can now be solved in a few days and the Greek banks quickly re stored t o no r ma l . Th i s se e ms unlikely. But the eurozone too faces a dilemma. There the impression was conveyed that a No vote meant leaving the euro, and Jean-Claude Juncker, the EU President, said leaving the euro meant leaving the EU.
If the eurozone sticks to its existing unbending approach it will set in train a series of events which are unprecedented and not wholly predictable.
The immediate crucial decision is the one facing the ECB, which is theoretically independent and not comfortable with the liquidity it has felt obliged to give the Greek banks. But if it does not give fresh support, the banks will remain closed and the Greek government will have to pay its own employees with IOUs as a sort of parallel currency. The consequences of this would be extremely uncomfortable, possibly catastrophic, for ordinary citizens.
Sadly, Europe is reaping the consequences of the flaws in the concept of the euro. A single currency between sovereign states with sovereign parliaments was always a contradiction. Legitimac y lies with national parliaments and voters expect them to deliver results. That is why a situation such as this was bound to arise at some point.
George Osborne must have been hoping that whatever the outcome of the re f e re nd u m, the cr i s i s wou l d b e resolved. That appears unlikely and alas is not good news for the UK.
Tsipras has given the impression that the crisis can be solved in a few days and banks restored to normal.