Hey there, time traveller!
This article was published 7/7/2015 (2337 days ago), so information in it may no longer be current.
Whether Sunday's Greek referendum would make any difference was widely questioned before it happened. Yet, the resounding "no" vote delivered by the Greek people has been followed by a quickening of the pace of events. Within hours of the declaration of the referendum result, German Chancellor Angela Merkel was not only planning to fly to Paris for a meeting with French President François Hollande to discuss the next steps, a eurozone summit was also announced.
And in a completely unexpected development, the finance minister who so grated on creditors' nerves, Yanis Varoufakis, resigned.
That the next few days could be decisive for Greece is clear to many. They are also likely to be critical for the euro project as a whole.
The resounding 61 per cent "no" vote struck a decisive blow not just for democracy but also economic sense, two things that are rarely supposed to go together in today's neo-liberal common sense. And it was the second time this year. Just last January, Greeks elected Alexis Tsipras's left-wing Syriza government with a clear mandate to end the deadly austerity needlessly, and fruitlessly, foisted on them by their creditors. Months of tortuous negotiations revealed such unreasonable intransigence on the creditor's side the Greek government's negotiating position not only kept its people on side but also won over economists from across the political spectrum.
The Greek people went against a formidable array of opponents supporting the "yes" side: the German government, the EU, the European Central Bank, the IMF, the European financial establishment, all political parties other than the governing Syriza and Anel, and the all privately owned media.
Greeks voted "no" despite the nightmare scenarios many on the "yes" side conjured up about the consequences of voting "no" -- an economically catastrophic, or "Grexit," a Greek exit from the euro. They voted "no" because they were already in the nightmare, wide awake.
Austerity has already led to a 27 per cent drop on Greek GDP and made Greek conditions worse than those in the Great Depression in the U.S. with shocking statistics of plummeting life expectancy and soaring unemployment, suicide and morbidity rates. The demand for more austerity amid all this suffering appeared as it was, not just heartless but brainless. As even the Financial Times noted, "There is no reputable economic theory according to which an economy that has experienced an eight-year-long depression requires a new round of austerity to bring about economic adjustment."
The solution is less clear. The Greek government remains committed to the euro. Indeed, Tsipras asked Varoufakis to resign to make negotiations with creditors. Notwithstanding the left's opinion Grexit would be better than more austerity, and the right-wing threat that "no" was the shortcut to Grexit, things are more complicated. To begin with, the government had made it clear during the campaign the vote was only on the terms of the Troika's latest offer, not on membership of the eurozone, which they remain committed to. And just days before the referendum, Varoufakis had claimed a deal acceptable to him already existed. The referendum has merely strengthened their hand in negotiations to come.
Can Syriza get a better deal? What will force the Troika to offer it? Many factors. First, there are no clear provisions for leaving the euro.
Second, a Greek default will require significant debt write-offs by French and German banks. Third, the Greek referendum result has already taken its toll on the euro in financial markets and, even with promised ECB intervention, prolonged uncertainty involved in the messy and long-drawn-out process of a Grexit could hardly be welcome.
The Germans, moreover, are not only committed to maintaining the eurozone -- they, after all, benefit the most from it -- but are also afraid of the geopolitical consequences of Grexit: a Greece outside the euro, unable and unwilling to access financing on western terms, might turn to China and Russia. The "demonstration effect" of Grexit, particularly if Greece stabilizes and recovers -- which is difficult but not unlikely -- on other suffering eurozone members is another reason for caution.
However, all these factors may yet not prevent Grexit. For one thing, the sheer strength of the referendum's "no" vote, which undoubtedly surprised the Syriza leadership, too, may make it impossible for the Greek government to accept a deal they might have accepted before the referendum. Moreover, as Europe has lurched from one crisis to the next over the past five years or so, it has done just enough to stabilize the situation, and nothing more. This strategy may be tested now.
Without an early deal, the Greek financial system may no longer be able to operate with the drip-feed of liquidity the "emergency lending facility" still provides. It might even end, whether when Greece defaults on another 3.5-billion-euro payment on or before July 20.
Then, if not before, the Greek government and central bank may be forced to issue a parallel currency just to keep the payments system going. While this would not necessarily amount to Grexit, it could certainly be among the weighty factors to tip it toward that, particularly if (despite being valueless for external payments) it proved effective in beginning an economic revival.
To avert this scenario, however, the eurozone would have to alter its architecture in a manner that can permit broad-based growth in a way it never has. So far, it has not come up with one.
Radhika Desai is a political science professor at the University of Manitoba and the director of the Geopolitical Economy Research Group.