Greek government lays an egg
The six-month long greek experiment with a Marxist/radical left government is likely coming to an end. The greek crisis took a dramatic turn for the absurd over the weekend. Within spitting distance of an agreement with its creditors, and in a surprise move, Greek prime minister Alexis Tsipras announced a referendum on whether Greece should accept the latest creditor terms.
The greek government has spent the last 6 months antagonizing its European partners and creditors while working to undo many of the reforms put in place by the previous governments (for a recent blog post I prepared on some of the causes of the greek crisis see here). In their abject failure, greek leaders have alienated friends and partners. The economic uncertainty of the last 6 months has put the economy in a tail spin, thereby making the creditor demands and terms harsher.
Many legal experts agree that the referendum is unconstitutional (in that it is explicitly forbidden in the constitution to hold referendums on state fiscal issues). In an act of cowardice, the greek government has decided to place the burden of deciding complicated economic policy on the greek people, thereby abdicating its recponsibility and mandate.
Here is a translated version of the question in the referendum: “We must accept the plan of agreement, which was proposed by the European Union, European Central Bank and the International Monetary Fund on 6/25/2015 and is composed of two parts which together comprise their entire proposal: the first document titled ‘Reforms for the completion of the current program and beyond’ and the second titled ‘Preliminary Debt Sustainability Analysis’ NO (Not approved) or YES (approved).” The greek public has seven days to parse what this means and vote. You would not be faulted for thinking this is all a joke.
Most referendums pose a clearly stated question (e.g. for the euro or against; for breaking away from the UK or not) and are organized with months of advance notice to allow advocates time to educate the public. The greek public was given seven days to decide one of the most complicated economic policy decisions of our time. During the weekend, current European Union president Jean-Claude Juncker took the unprecedented step of issuing a press release to reveal just how close they were to an agreement with the greek side.
In a surreal scheme, the greek government is campaigning for a vote of NO to the referendum. In a best case, they are advocating a perverse theory, under which the European creditors would yield to the vote of the greek people and offer them a better deal. In a worse case, this was planned all along as an excuse to exit the Euro, adopt the drachma and control they destiny by spending at will. The fact that the new currency would immediately lose a significant part of its value seems to escape them.
When you boil it down, this is a vote for the drachma (a vote of NO) or for the euro (a vote of YES).
Before the referendum vote on Sunday, Greece is expected to miss a payment to the IMF on Tuesday and will technically be in default. As a result, the referendum announcement immediately resulted in an economic meltdown as businesses stopped accepting credit and demanded cash payments for goods and services. Predictably, there was a run on the banks, which will remain closed for a few days in order to implement new capital controls. Daily withdrawals are limited to 60 euros per day.
And therein lies the silver lining of this whole affair: the greeks will have to decide on their future by answering a policy question, the implications of which they get to experience for a week. They get a glimpse of what life will be like if the country defaults on its debt and converts to the drachma. It is ironic that by waiting until the last moment to call a referendum, the government has provided a wake up call. The greek people are realizing that the coalition of communists, leftists and populists (who regard Venezuela as a model to be imitated), is actually incapable of leading the country. They are realizing that the promise of a better deal that keeps the country within the Euro through confrontation with the European partners was either a gross miscalculation, or worse, a lie.
Regardless of the referendum outcome, the likely result is a collapse of the current government. A YES vote is a total repudiation of the government policy, with resulting pressure for resignations. A NO vote will not yield a better deal but instead accelerate the country’s path to the drachma, with the resulting chaos leading to collapse of support.
The panic of the greek people is palpable in social media. The voices are becoming angry and anxious. The government narrative is crumbling, even in the context of a hands-off press that has failed the people over the last six months. So, I think the greeks will vote YES to stay within the Euro zone, resulting in the fall of the SYRIZA government.
