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Greece and its European Union partners are beginning to sort out what's next after the country voted en masse to reject a German-led bailout plan that would have given the country more credit to pay its debt in exchange for tough austerity measures.
As The New York Times reports, now that the vote is in, the hard part begins. Using the vote as leverage, Greece will try to renegotiate more favorable terms for its bailout, but its European partners could insist on tough terms, which could ultimately result in Greece's exit from the European Union.
Meanwhile, the vote had its first concrete consequence on Monday when Greek Finance Minister Yanis Varoufakis resigned. Varoufakis went on to call the vote "splendid" and the "historic" moment in which Greece "rose up against debt bondage. I shall wear the creditors' loathing with pride," he said.
Ending Greece’s Bleeding |
| Prime Minister Alexis Tsipras of Greece, second left, before a meeting with other political leaders in Athens on Monday. Credit Petros Giannakouris/Associated Press |
PAUL KRUGMAN, NY TIMES
...the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.
What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.
But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?
Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.
Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth.
In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?
I have no idea — and in any case there is now a strong argument that Greek exit from the euro is the best of bad options.
How come no one is suggesting that Greece be abandoned and let them
Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation.
Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?
Would Greek exit from the euro work as well as Iceland’s highly successful devaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.
And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.
Greek Crisis Shows How Germany’s Power Polarizes Europe
WALL ST JOURNAL
Ms. Merkel’s power after a decade in office has become seemingly untouchable, both within Germany and across Europe. But with the “no” vote in Sunday’s Greek referendum on bailout terms posing the biggest challenge yet to decades of European integration, risks to the European project resulting from Germany’s rise as the Continent’s most powerful country are becoming clear.
On Friday, Spanish antiausterity leader Pablo Iglesias urged his countrymen: “We don’t want to be a German colony.” On Sunday, after Greece’s result became clear, Italian populist Beppe Grillo said, “Now Merkel and bankers will have food for thought.” On Monday, Ms. Merkel flew to Paris for crisis talks amid signs the French government was resisting Berlin’s hard line on Greece.
Ms. Merkel’s popularity at home has remained strong through the Greek crisis, holding about steady at 67% in a poll at the end of June. She now must weigh whether to offer additional carrots to Greece to keep the country in the euro and preserve the irreversibility of membership in the common currency—at the risk of political backlash at home and the ire of German fiscal hawks. Only 10% of Germans supported further concessions for Greece in another poll last week.
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Greece Is Just The Beginning Of The Great Austerity Backlash
HOWARD FINEMAN, HUFFINGTON POST
Now that the...world’s top dozen banks control $30 trillion in assets, the callous demands of a new and even larger “money power” is starting to spark a worldwide backlash.
Even the ever-cautious Obama has alluded to it. This past winter, he defended Greece, saying that “you can’t keep squeezing countries that are in the midst of depression” to pay off debt and warning that "eventually the political system, the society can’t sustain it.”
Europe, meanwhile, is likely to see the Greek anti-austerity sentiment spread -- in the first instance to Portugal and Spain, which have national elections this fall and winter, respectively. Governments in both countries are responding to heavy borrowing and debt with controversial austerity measures sure to be at issue with the voters. French and Italian national elections are much further away, but the leftist parties in each nation have been invigorated by the fight in Athens. Representatives of parties and movements in all four countries were on the scene in Greece this week, cheering on the Syriza party and trying to learn from its victories and mistakes.
The leftists face long odds despite growing evidence that what British economist John Maynard Keynes warned during the Great Depression (and what Obama said this winter) remains true: You can’t “squeeze” a country into prosperity. Just the opposite, in fact.
This was something the founders of the International Monetary Fund understood. Their original aim was to provide guidance to national governments in economic distress but also to feed in more money where needed, not cut it back. Today the IMF has become something akin to a collection agency, insisting on harsh measures that guarantee the repayment of loans made to vulnerable countries by private global banks.
Something has to change, as the Greeks declared with their vote this weekend.