Tag Archive: blackmail

To Grexit, or not to Grexit, that is the question

© Ricardo Pinto, 2015, AngloDeutsch™ Blog, www.AngloDeutsch.EU

And so, amazingly and beyond most Europeans’ wildest imagination, it has come to the single most important Referendum since the beginning of the Eurozone, indeed since the very beginning of the European Union (EU) “project”. The Greek nation is voting in a historic referendum that will shape its future, as well as that of the 18 other nations of the Eurozone and the 28 nations on the EU.

As a Briton, I belong to one of the 9 countries that are not part to the Eurozone, but I live and am based in Germany, so I am contributing to the various bailouts. My views of the historic vote the Greeks are casting are shaped by both sets of experiences, which is valuable, since Greece may soon be one of the 9, following a probable default, probable exit from the Euro and possible exist from the EU, the so-called Grexit.

Let me start by saying that I fully understand the Greek’s anger and frustration with the current situation. Unemployment of around 25%, youth unemployment of 60%, wage reductions, pension reductions, poverty reaching unprecedented levels, pensioners desperate to get some money and all the rest of it. Whatever you may think about Germany and the Germans, you will surely be aware of the suffering of the German civilian population after two world wars, hyperinflation, devaluation, two periods of devastation in the last century. The Britons have also gone through traumas. So have the Irish, Portuguese, Spaniards and Cypriots to varying degrees at the same time as the Greeks. No one wants to see this whole sorry situation drag on endlessly.

I am tired of and increasingly frustrated with all the accusations, bickering, tantrums and all the rest that all our politicians have been guilty of since January 2015, reaching a crescendo in the last two weeks. At a historical turning point in European history, it is sad and worrying to see just how divided Europe is. This does not bode well for Greece, the other 18 countries in the Euro or the 28 nations of the EU, not mention the large number of countries that aspire to join the EU in the future. Only one country will be quietly satisfied observing that is going on: Russia.

There have been all sorts of claims and arguments from politicians and economists, many of them totally contradictory. I am just an interested observer who is contributing through my taxes to the bailouts, who may be affected by a possible Euro collapse and who will be affected by the future shape of Europe resulting from today’s referendum. I would like to highlight some issues that Greeks may or may not be considering in casting their vote, but which are probably impossible to pay adequate attention to. given the chaotic and febrile situation, as well as the compressed timescale for this critical referendum:

  1. Europe is not to blame for Greece’s woes. This is first and foremost Greece’s own responsibility.
  2. The EU is not to blame for the Greeks’ troubles. Greek governments have consistently promised more than they could deliver and its citizens have knowingly voted them in one after the other, including the current Syriza. If what politicians are offering sounds too good to be true, it probably is and in other countries, the electorate generally acts accordingly.
  3. The Euro is not the reason why Greece needs bailouts. Greek government, Greek businesses and Greeks individually have lived beyond their means for decades and then used the historically low interest rates generated by (fraudulently) joining the Eurozone to over-borrow even more than previously. But we know full well that what is borrowed must eventually be repaid – and so do they.
  4. Greece has systematically lost competitiveness through its own actions and inactions. Generation upon generation of politician has borrowed too much, created too many public sector jobs, feathered the nests of their supporters through unaffordable perks such as early retirement, failed to collect the taxes due from certain segments of society, refused to implement needed reforms and again and again paid itself too much. In the 10 years until the crisis, the Greeks awarded themselves a 100% increase in wages, not to mention anything about early retirement or other perks. The loss of Greek competitiveness is not due to the EU, the Euro, the banks, the capitalists, the oligarchs, the politicians etc. They have collectively failed to maintain or improve their own competitiveness. The last 5 years have reinforced an entrenched the pattern and austerity has made the pre-existing situtation a lot worse, which is the main criticism which is justifiable. But the last five years were not the cause.
  5. The German, French and other banks are not to blame for the Greeks´ ills. These and other banks saw the opportunity to expand their business in this and other similar countries (as have Greek banks in the whole of the Balkans region) and lent according to the regulatory principles of the Greek Central Bank, according to the contracts that the Greek government, businesses and individuals signed. All three took the money that was lent and did not concern themselves unduly about its origin, though this has become an issue when it comes to payback. The banks naturally want to be repaid the huge sums involved otherwise they go bust, meaning losses for all the individuals that save with them, businesses that bank with them, shareholders that invest in them and others. They are no different from the Greek banks operating in Greece, the Balkans and elsewhere. If the banks (including Greek ones) had not been rescued or propped up, the consequences for the Greeks and for us in the Eurozone and non-Eurozone countries would have been disastrous. The Eurozone has acted correctly in avoiding this scenario. All the talk of paying French and German banks but failing to mention all the others, including Greek banks is hypocrisy. This has happened in all countries where it had to happen, including Britain, Ireland and the United States. If push comes to shove and governments have to make a similar choice again, the same pattern will be repeated because the alternative is worse.
  6. Greece has been the whipping boy for the Eurozone, but not the only one. The fact is that the Eurozone could easily have suffered “contagion” if Greece had defaulted at the time of the first and second bailouts. Furthermore the vast majority (around 90%) of the bailout has gone to the banks rather than the people of Greece. However, this was neither premeditated nor designed to impoverish, punish or humiliate the Greek people. I have already discussed the likely consequences of allowing a Lehman-style ”letting go” of the commercial banking sector. The failsafe mechanisms were simply not in place at the time (who knows if they really are this time around). The Eurozone was doing whatever was necessary to stop a doomsday scenario in Greece and potentially the other weak countries, as well as the whole of the Eurozone area. They succeeded, but at an even greater cost to Greece. But Greece chose to remain in the EU and the Euro. It did not have to.
  7. The Eurozone is not responsible for past, present or future Greek prosperity. There is no transfer union in the EU and it is not possible to have permanent bail outs of one nation by any other nation. Therefore Greece does not have an automatic right to be bailed out by anyone and certainly not on an on-going basis. Solidarity stretches only so far and cuts both ways. The Greeks should reflect on the fact that many of the nations bailing them out are notably poorer than them. If Greece is being bailing out, it is not to create a long-term dependency culture, but to help it to help itself and to be economically sustainable as soon as possible. Greece is entirely responsible for its present and future prosperity, not others.
  8. Greece has chosen so far to remain in the EU and Euro and must live with the consequences. Greece has held two national elections at which its electorate has categorically insisted upon remaining in the EU and the Eurozone. There is a price to be paid for this decision on their part and that price is called “internal devaluation”. The way that the Greek nation can regain competitiveness and eventually stand on its own two feet, is to reduce wages and other costs to levels which are compatible with their economic performance. The other option is to leave the Euro, but this is exactly what Greeks have insisted upon avoiding so far. The decision today enables the country to choose its own path for the third time. If they choose the same path as the rest of the Eurozone countries, then they have to abide by the implications. Please, let us not have any more accusation of blackmail, terrorism, humiliation of the Greek nation and all the rest of it.
  9. No one is taking sovereignty away from the Greeks. The Eurozone does not owe Greece anything and certainly not on a permanent basis (which is actually illegal in the EU and rightly so). So far Greece has chosen to remain in the Euro and swallow the bitter pill of internal devaluation that goes with the bailouts. The bailouts involve clear conditionality and the other Eurozone governments will only provide further tranches of funds if they accept the conditions/reforms connected with the bailouts. No one can or should get money for nothing. The conditionality is designed to enable Greece to get back on its own two feet as soon as possible, including priority reforms which previous Greek governments have systematically failed to implement over decades. Most people are totally unwilling to pay for a free Greek (Irish, Spanish, Portuguese, Maltese) lunch and certainly not for ever. And the same applies to these countries in reverse. Greece has a duty and responsibility, to itself as well as the Eurozone countries, to reform and regain its competitiveness as soon as possible. The conditionality is not for the benefit of the other countries, except in the sense that they and their electorates / taxpayers wish fervently not have to have to continue to bail out other countries.
  10. No one has twisted Greece’s arm and forced it to take the bailouts and accept the associated conditionality. Greece asked for the bailouts arising directly from its own actions over decades. Its politicians signed-up to the money and the conditionality. If it takes the cash but fails to deliver on the conditionality, shit happens. But as the popular saying goes: “Fool me once, shame on you; fool me twice, shame on me.” EU voters in other countries will not allow further bailouts that fail to deliver the promises of reform for ever. Our politicians know this and they are not suicidal. They have a responsibility towards the Greek citizen by virtue of Greece being part of the Eurozone. However, they have a much greater responsibility towards their own electorates and to fulfil their own mandates. This will always trump Greece in a democratic environment comprising 28 nation states, and rightly so.
  11. The last general election resulted in a Syriza majority despite the electorate knowing full well that its programme was both contradictory and unaffordable without continuing bailouts from the Eurozone countries, debt relief and a cancellation of numerous conditions attached with the present bailout agreement. The nightmarish last five months have been the direct consequence of the mandate that the Greek people have given Syriza to end austerity. This is pie in the sky. This will not happen for a decade, regardless of whether Syriza is able to extract all the concessions it wants and certainly regardless of whether Greece remains part of Euro/EU or not. The mandate to end austerity in Greece is pure political opportunism on the part of Syriza: it amounts to a populist policy that cannot be delivered. Messrs Tsipras and Varoufakis know this full well and so does the Greek electorate.
  12. Mr Tsipras and Mr Varoufakis cannot deliver the mandate they have asked for. They have assumed that the risk arising from Greek default is so high that the Eurozone countries would agree to whatever they demanded and have acted accordingly. They have deliberately and consistently gambled over the last five months with the future of Greece, as well as that of the rest of the Eurozone (and beyond – Britain, take note). I resent this stratagem on the part of the Greek government and I feel indignant about it both on the part of the ordinary Greeks and other Eurozone citizens. Game theory is all very well when it comes to econometric modelling, but not when the future wellbeing of 19 countries is at stake. Newsflash for Mr Varoufakis: we are not a mathematical model comprising 10 million Greek voters and a further 325 million rest-of-Eurozone variables to be number crunched until your previously desired statistical outcome is eventually delivered. The sad reality is that all that the Fine Your Radicals have manage to achieve so far, other than plunging Greece into unneeded and unwanted chaos, it to manage to rename the hated “Troika” to the equally detested “Institutions.” Game theory at its best? We are real people, not some gigantic theoretical experiment. The Greeks are facing enormous stress which goes well beyond any spurious mandate that Syriza believes it has managed to extract from a deeply traumatised nation.
  13. Greece has broken the EU way of doing things and the current state of the country is the result. The only way that it is possible for 19 counties to make decisions on such issues as the future of Greece and the Euro (and possibly the EU) is through compromise. Neither Mr Varoufakis nor Mr Tsipras have proved to be willing or able to play the game according to the established rules. The game theory assumption is that when push comes to shove, the Eurozone countries will back down and agree to more or less whatever Greece wishes. Newsflash for Mr Varoufakis: this hardball strategy, which plays fast and loose with the lives of 350 million people, not just that of the Greeks, has failed. The resulting fall-out is a complete and utter lack of trust on a scale never previously witnessed in Europe (not even during Margaret Thatcher’s period as British Prime Minister) since the end of the Cold War period. It does not serve Greece’s interests. It does not serve Eurozone interests. It does not serve EU interests. And it does not serve global interests.
  14. The current chaos in Greece only serves Russian interests. The geographers out there would agree that Greece is undoubted located at a pivotal geo-political position in Europe. The USA, EU and Greece know this, and so does Russia. Mr Tsipras´ attentive and persistent courting of Russia has been deliberate and has not failed to grab our attention. Europe is at a turning point and Russia, despite the ongoing economic weaknesses due primarily to low petrochemical prices, is resurgent. This is game theory with serious global implications which go potentially beyond mere economics and finance. The obvious and explicit threat is that Greece will turn its back on Europe and fall straight into the arms of mother Russian. Good luck with that. Greece is part of the European Union and Greeks feel European. There is nothing in the mandate that the Greek that citizens have given to Syriza to justify this approach and it can only entrench feelings against Syriza in the first instance and the Greek nation thereafter.
  15. Austerity cannot and will not be stopped tomorrow or any time soon. What the Greek or any other politicians imply, say or promise count for nothing as far as austerity is concerned. Not much will change, regardless of whether Greece votes Oxi (yes) or Nai (no). The choice is between “shock therapy” by defaulting and leaving the Euro or “muddling through” with EU bailouts. Neither option is quick nor palatable, though the shock therapy route does offer the promise of regaining competitiveness faster than the “muddle through” option, since Greece would then be totally in charge of its own currency and its own monetary policy, instead of the Euro straitjacket. However, there is no guarantee that its politicians will be able to agree, implement or maintain the long-term reforms necessary to achieve greater and faster economic dynamism than the current path. Presumably this lack of confidence in their own politicians is the reason why the Greeks are bending over backwards to remain in the Euro and the EU, rather than to entrust their own leaders with their future. The chaotic last 6 months are not a good omen: who can blame them?
  16. A flip-flopping government has run out of credibility, friends and trust. The negotiating position of Greece fluctuated over time but unilaterally pulling out of negotiations at a critical time, calling a snap referendum, the decision by Messrs Tsipras and Varoufakis to solicit a “no” vote, not to mention the increasingly bellicose language used, means that there is no longer any trust in the current Greek government. How Messrs Tsipras and Varoufakis can imagine that Greece’s negotiating position will be strengthened by a “no” vote is beyond me but this must obviously be the conclusion that their game theorising has led them to. The main counterparts in the whole process, not least IMF, EC and the principal contributor to the bailouts, Germany, have stated that they will not be able to work with Mr Varoufakis while remaining a vague about whether the same applies to Syriza.
  17. The EU cannot achieve regime change, only the Greek people can. The Institutions/Troika can say whatever they like (and they are, presumably because of their exasperation) but only the Greek people can decide on their own future and which party will lead them. The rest of Europe will have to like or lump it: that is the nature of democracy. But what exactly are the Greeks deciding on in this referendum? Do the people understand the convoluted question? Do they have enough time to consider the options properly? Even if the answer is “yes” twice over, is there an EU bailout on offer to vote on? The answer is “no”. The only thing that the voters are deciding on is whether they want to be part of the Euro or not. Already, with funds running low, there are chaotic and heart-rending scenes that are nothing to be proud of, either in Greece, the Eurozone or the rest of the EU. If this goes on, whatever the announcements by the Syriza government that they have stock-piled food and medicines (when did they do this and why did they do so, unless they did not expect their negotiations to succeed?), we shall all be diminished and the Greek people will indeed be desperate. Who knows what kind of chaos will break out? Has this really been factored in by Syriza? I very much doubt it. I suspect that they are just winging it.
  18. Neither option will be palatable to Greek people: it is a case of damned if you do and damned if you don’t. A yes vote could mean easier negotiations with Syriza since they will then have another mandate (but they already have the mandate of remaining in the Eurozone) to negotiate the terms of the bailouts. This will be awkward but not impossible to roll up the sleeves and find a workable compromise this time around. We expect no less from our politicians. But a resignation by Syriza is the more likely outcome based on their intransigent approach in the last five months. There would be another general election, with the possibility of an even more radical government coming to power and the crisis being drawn-out even longer. Or it could mean a “traditional” government that will agree debt relief, combined with an acceptable bailout programme and conditionality. Either way, the Greeks cannot expect higher minimum wages, pensions, etc. than exist in the various countries that are contributing to keeping their economy afloat but do not enjoy the same level of benefits. This is not feasible and will not be agreed to. Living within their means has to be the way forward, even with the significant debt relief combined with serious investment for growth and development that I sincerely hope will be hammered out next time round.
  19. The present is bleak, but the future could be worse. No European, indeed no human being, can look upon the scenes in Greece with aloofness. My parents are pensioners and I would not wish this sort of thing upon them or any other person. However, should the Greeks choose the “no” path, followed by default and introduction of a new Drachma, they will have delivered themselves into an unpredictable roller-coaster ride which will test the nation well beyond the limits of anything they have endured so far. There is plenty of not-so-distant experience of “shock therapy” in most of Central and Eastern Europe, including Russia. Whatever the alluring promises on the part of duplicitous politicians or contradictory prize-winning economists, the bloody reality will result in economic and human carnage in the short-term. This will, hopefully, quickly be followed by much more rapid recovery and prosperity than possible under the current “muddling through” option within the Euro. But don’t bet on it: economic theory and reality are usually out of sync, as the last five years should have once gain proved.
  20. A last word on the matter. Good luck to the Greeks today. I would not like to be in their shoes and I can only hope that they will make the right decision for Greece, as well as for the rest of us.