Athens Is Being Blackmailed
3 July by Philippe Legrain
Greece’s creditors hope that by unleashing chaos, they can bring the country to its knees ahead of Sunday’s referendum. Greeks must not give in.
“If the Greek government thinks it should hold a referendum, it should hold a referendum. Maybe it would even be the right measure to let the Greek people decide whether they’re ready to accept what needs to be done.” Fine words from Germany’s finance minister, Wolfgang Schäuble, on May 11.
Yet on June 26, when prime minister Alexis Tsipras duly announced a referendum on whether the Greek government should accept its creditors’ highly unsatisfactory final offer, Schäuble and other eurozone finance ministers reacted very differently. They cut off negotiations with Athens, sabotaged the referendum, and set Greece on a course for capital controls, default, and potentially even euro exit.
Democracy? What’s that?
The creditors have tried to blame Tsipras for the breakdown in negotiations. But it was their stubborn refusal to offer an insolvent Greece the debt relief that its depressed economy desperately needs to recover which backed Tsipras into a corner. In exchange for a short-lived infusion of cash, they were insisting on years of grinding austerity dressed up as “reforms”, as I explained previously. With rapacious creditors intent on pillaging the impoverished Greek economy, Tsipras could scarcely agree to their terms. So he gave Greeks themselves a say, while rightly urging them to vote No.
Ironically, the exaggerated fear of Grexit and the emotional association, even after five years of debt bondage, between euro membership and being part of modern Europe might well have led Greeks to vote Yes to the creditors’ iniquitous terms. But eurozone authorities are so terrified of voters that they have sought to deny Greeks a say. They rejected the Greek government’s request to extend the current EU loan program for a month beyond its expiry on June 30. So, if and when Greeks vote on July 5, the program will have expired, and with it the creditors’ offer on which they will be casting their ballots. It would be funny if it weren’t so sad.
Many twists and turns can happen between now and then. Negotiations may resume. Decisions can be reversed, compromises brokered. Nobody knows how the standoff between Greece and its creditors is ultimately going to be resolved.
In the meantime, the creditors continue to ratchet up the pressure. Following on from the refusal to extend the EU loan program, the European Central Bank (ECB) on June 28 decided not to provide Greek banks with any additional emergency liquidity to cover cash withdrawals, which have gathered pace over the weekend. That political move forced the Greek government to declare a bank holiday on Monday to prevent a run that would cause the Greek banking system to collapse, along with capital controls to prevent euros draining out of the Greek economy.
On Tuesday, when the EU loan program expires, and with it the 7.2 billion euros outstanding and other moneys long promised to Greece but not delivered, Greece is likely to default on a 1.5 billion euro payment due to the International Monetary Fund. Being in arrears to the IMF is regrettable, but not fatal. For its part, the Fund shouldn’t have bent its rules to lend exceptional amounts to an insolvent Greece.
The creditors’ aim is clear: to force Greeks to their knees. A week without access to a bank account and the prospect of Grexit may spur them to vote Yes in the referendum. Tsipras says that he would then sign up to the creditors’ demands. But the creditors insist that they could not trust the government to implement the terms of the agreement. Their real agenda, then, is forcing a change of government.
The creditors have form. In November 2011, when the elected prime minister of Greece, a moderate social democrat, proposed a referendum on the EU-IMF loan program, eurozone authorities orchestrated his replacement by a more pliable, unelected technocrat. Whatever you think of Syriza and their leftist politics, another coup would be an affront to democracy.
Greeks should not be bowed by this “gunboat diplomacy,” to use Karl helan’s words. Over the coming week, Tsipras and his team need to prepare plans for coping with default, including the introduction of a parallel currency that could subsequently become a new drachma. There is a chance that a resounding No vote in the referendum will bring the creditors to their senses. But if it doesn’t, default on the 3.5 billion euros due to the ECB on July 20 and leaving the euro is better than debt bondage.
Grexit would be painful initially. But by forcing the Greek government to curtail bank withdrawals and control capital outflows now, the creditors are frontloading some of its costs, making the additional pain of leaving smaller. Freed of debt, with a cheaper currency, and with greater policy freedom, the Greek economy would soon recover. Argentina’s started growing again only a year after quitting its currency board with the US dollar in 2001. And if the Greek government continued to service its private debts, it would soon regain market access. The country’s future prospects would then depend on how well (or badly) it was governed. Let the Greek government and the Greek people be responsible for that.
A key motive for creating the euro was to reassert political control over the “tyranny” of markets. But the hijack of eurozone institutions by narrow-minded creditors is proving far more tyrannical than earlier currency crises ever were. The beautiful European ideal of peace, prosperity, and democracy has given way to brutal power politics.
Author
Philippe Legrain