I spent more time than usual on the Tweeter Tube this weekend because of the Dead’s Fare The Well shows; more about that later. I was asked several times what I thought of the Greek referendum and, more importantly, what it means. My answer was concise and unsatisfactory: Beats the hell outta me. The OXI (NO) camp won a resounding victory with over 60% of the vote but the turnout was fairly modest. Anyone who says they know with certainty what will happen next should be asked to take a breathalyzer or polygraph. On balance, I think the OXI vote is a good thing but I haven’t the foggiest notion of how this will play out. Mistrust those who say they do.
One fortuitous bit of news is that malaka in chief and EU bugbear Yannis Varoufakis is out as Finance Minister. There’s a dispute as to whether he was pushed by Prime Minister Tspiras or jumped because the creditors hate him. Varoufakis is posturing heroically, claiming that he fell on his sword for the good of his country and party. Varoufakis, who was a visiting professor at UT-Austin from 2013-14, combines Texan and Hellenic bluster, which results in a blizzard of bullshit. The only reason I regret his departure is that I planned to call him Varoufucker. A nickname has been lost.
I don’t claim to know much about the economics of the situation but this analysis is pretty darn good and puts things in context. The sub-heads are the author’s:
LET THE GOOD TIMES ROLL
The arrival of the euro only fueled the debt binge. German and French banks found they could now buy Greek government bonds in euros, not drachmas that might devalue. Greece borrowed at what in retrospect were ridiculously low interest rates, just a bit more than those charged to rock-solid Germany.
They were in the euro, the thinking went, what could go wrong?
In October 2009, after the global financial crisis had made investors more wary of risk, Greece revealed its deficit was far higher than advertised, and its finances were out of control. Its borrowing costs shot up. It couldn’t pay.
When the party ended, Greece got a 110 billion euro bailout in 2010 from the other eurozone countries and the International Monetary Fund. The creditors attached tough conditions to cut spending and deficits, and to tackle the rampant bureaucracy and corruption. Yet the cuts quickly undermined growth, which fell below the optimistic estimates of the creditors who miscalculated how much they would weigh on the economy.
There was a contradiction that couldn’t be resolved: cuts in public spending were needed to reduce Greece’s cost base because it couldn’t devalue. Yet the lower public spending pushed down GDP and simply made the debt burden bigger compared to the size of the economy.
Unemployment soared. Misery multiplied.
HANDCUFFED BY THE EURO
With its own currency, Greece could have defaulted on its debts and devalued, quickly erasing its international cost problem, and moved on within a few years. Cutting wages and prices is tougher, and takes longer. In that sense, the euro has prolonged the agony.
The inability to devalue is one reason the Labour government cooled its jets on the Euro after running on a pledge to join. Tony Blair was all for it but Gordon Brown restrained the Europhile Blair and kept the UK out of the Eurozone. EU membership confers many benefits but the Euro is increasingly looking like a suicide pact, that is, unless, the Germans give some ground. A positive outcome is vital for Chancellor Angela Merkel’s legacy.
The fog of German history is behind Merkel’s temporizing, moralizing, and inflexibility. It has nothing to do with their Nazi past, but more to do with Merkel’s frugal childhood in Communist East Germany, and memories of the hyper-inflation and economic collapse of the 1920’s. The latter event has made the Germans the polar opposite of the profiligate Greeks when it comes to deficit spending. It’s a pity that they don’t focus on the *reason* for Germany’s economic meltdown in the ’20’s: the harsh terms of the Versailles Treaty and the reparations payments therein. The political results of that meltdown are obvious: Hitler’s Third Reich and the Stalinist DDR.
I keep hoping that cooler heads will prevail. The EU/IMF/Creditors side reportedly thinks that Tsipras is a rational man who can be dealt with. The OXI vote gives him public support in negotiations FOR NOW. I say FOR NOW because the NO vote in the Scottish Independence referendum paradoxically strengthened the SNP and gutted Scottish Labour. In short, ya never know.
I do, however, think the time for dancing in the Hellenic streets is over. It’s time for sober reflection and a decision on Grexit. Leaving the Euro is potentially a good idea but departing the EU is not. They would not be the only member state to be a part of one but not the other. I’m not sure if the German-French duopoly will allow Greece to do so. It may be time to resurrect Houdini to help the Greeks escape from the Euro handcuffs.