Back where we started–only worse

When I first heard the announcement that the Syriza government was calling a referendum on the Eurozone’s proposed bailout package, I thought that such a democratic exercise would be great if: 1) the public had enough time to study and debate the question; and 2) the ramifications of a yes or no vote were made clear. Neither of which was the case. Now we see in the sad denouement of this play (I will avoid the tired reference to “Greek Tragedy”) that the referendum choices were no choices at all and that the whole expensive, panic-inducing, chaotic exercise was a colossal waste of time and energy.  I just feel sorry for the Greek people and frustrated that the political leadership of all parties has failed them.

To recap the events of the past ten days or so:

1) After months of dragging negotiations, the Eurozone leadership made a final “take it or leave it” proposal to the Greek side.

2) The Greeks said that rather than agreeing to a bad deal, they would put it to a vote to the people and would campaign vigorously for a no vote, failing to acknowledge to voters that there was no better deal to be gotten and that the choice was either this deal or exit from the Euro zone.

3) The Eurozone leadership, fed up with the Greeks and the gamesmanship that they perceived from them, attempted to strong-arm the Greeks into voting Yes.

4) The historically feisty Greeks predictably voted No.

5) Greek depositors, fearing a quick collapse of the banks, made a final run on the banks–the last sprint in a year or more long run–thereby causing an immediate banking crisis.

6) Capital controls were instituted, business went into freefall as transactions became almost impossible, and the economy and banking sector headed for sudden collapse.

7) The Syriza government apparently realized that they were not in a position to jump off the cliff and exit the Euro in such a hasty fashion and conceded that the only deal they would get was an austerity deal.

8) The Greek side made a detailed proposal (today–you can see the actual proposal here if you want to get into the fine points) to the Eurozone leadership which contained pretty much the same elements as were in the proposal rejected by the Greek voters.

So, here we are now, come full circle. The only difference is that the banking system is in far worse shape than it was and the economy has tanked even more than it had. Can someone tell me what the point of this whole exercise was? If you say that it gave the Greek people a chance to have a say in their own destiny, that would be nice, but the reality is that the outcome was the opposite of what the No vote called for. So, I am confused as to what the Syriza government was thinking. Did they really believe that a No vote would suddenly result in a change of heart among the Eurozone members? Hard to believe that they could have been that optimistic.

Of course, the story is not over yet–not even this chapter. It still remains for the proposal to be approved and for Greek banks to get another large infusion of cash to prop them up in the short term.

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2 comments

  1. Thanks for your analysis. My questions concern point 2: “The Greeks said that rather than agreeing to a bad deal, they would put it to a vote to the people and would campaign vigorously for a no vote, failing to acknowledge to voters that there was no better deal to be gotten and that the choice was either this deal or exit from the Euro zone.” It seems to me that the Syriza government thought that there WAS a better deal to be gotten if they got the backing of the Greek people. Plus, the Syriza government probably thought it would be political suicide to accept the austerity package offered WITHOUT the clear support of the people. Even to this day the government is trying to negotiate a better deal and with Merkel and Hollande meeting and then this weekend the finance ministers and the European leaders meeting, it seems like there still could be some wiggle room. I may be overly optimistic, too, but I think come Monday there will be an agreement, Greece will accept the package with minor adjustments, and all sides will declare victory. After all, politics is often about saving face. Unfortunately, no matter the outcome, the Greek economy will take many years to recover.

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    1. The Eurozone side made it clear before the referendum that they weren’t going to offer any deal that was significantly more lenient. And the decision to hold the referendum only pissed off the hardliners more, making a better deal even more unlikely. If Syriza leadership didn’t understand this, then they are more amateurish than I thought. They clearly did figure this out quickly though since the proposal they offered is essentially the same as that which was put to the referendum. Only now the hardliners say we can’t trust Greece to carry it out, so it may be too late to rebuild trust.

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