Will they accept more austerity or will they refuse resulting in Greece defaulting on its upcoming IMF payment? That is the question being mulled by the Greek people expected to decisively answer in what’s billed as a yes/no referendum on yet more belt-tightening scheduled for July 5. Either way, there is prolonged pain ahead for the world’s oldest democracy.
Despite serial negotiations with the powers that be in Brussels and Greece’s creditors, hope for a compromise solution that all sides can live with is fast diminishing. A new bailout is on the table at least until June 30, but comes with harsh strings attached, including reduced pensions and added taxation. And the word from various European finance ministers is that there’s no chance of extending the deadline for the next debt payment, due on Tuesday, until the Greek people have spoken, exemplifying democracy’s true spirit in action.
With Greece’s exit from the euro zone looking ever more likely, which could portend the country’s withdrawal from the EU, Greece’s Prime Minister Alexis Tsipras is riding a wave of popularity not just on the street but also in the Parliament where he’s receiving standing ovations.
At a time when people are hoarding their cash and panic has emptied ATM machines and is causing a run on banks which may be forced to close their doors unless they receive an emergency injection from the Central Bank, the PM’s burgeoning approval rating has many on the outside looking in scratching their heads.
In reality, there’s no mystery here. The Greeks have no stomach for further cuts, which is why they voted for Tsipras, a rank and inexperienced outsider, in the first place. And, secondly, they’re a proud people who resent being ordered around by suits in Brussels, not to mention the hard-nosed lady in Germany. The majority does want to stick with the euro no matter how unkind it’s been to their country’s economy that was booming before it dumped the drachma, but on their own terms.
An unnamed senior government official told the Daily Telegraph “If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer. We will shut down the banks and nationalize them, and then issue IOUs if we have to, and we all know what this means. What we will not do is become a protectorate of the EU.”
Tsipras was in a bind. The victorious anti-austerity candidate could hardly do a U-turn without a severe public backlash. On the other hand, sticking to his principles will come at a heavy cost. The European Central Bank (ECB) debated whether or not to prop-up Greek banks amid unconfirmed reports that its board had decided to bin its program offering emergency assistance, but finally agreed to continue supplying the banks with liquidity…at least for now.
All sides have put on their poker faces so that’s it difficult to predict whether there is an element of bluff in their respective stances. German parliamentarian and member of Angela Merkel’s Christian Democrat Union, Christian von Stetten, does, however, represent the prevailing German view when he says, “The experiment with the Greeks in the euro zone who are unwilling to implement reforms, has failed and must be ended.” If the unthinkable happens, Mike Bird writing in the Business Insider predicts a gloomy scenario of “rampant inflation, political unrest, debt defaults and a possible ‘contagion’ with Europe’s financial sector.”
Greece’s short-medium future would look bleak, but as the Financial Times columnist, Wolfgang Munchau points out, “The creditors’ program was an economic version of Dante’s hell. It would have brought about the total economic destruction of Greece,” while arguing that Greece’s exit would have an eventual upside. The upside would be that Greece’s government would be in charge of its own currency, which would be devalued making the country more competitive in terms of tourism, exports and foreign investment. The initial downside would be unstable banks, high interest rates, and companies falling into bankruptcy like ninepins. Alan Greenspan, a former chairman of the US Federal Reserve, has warned that a Grexit could spell the euro zone’s end because the ECB would be left holding the baby — in other words, unpaid Greek debts to the tune of billions.
Moreover, if by some miracle, Greece comes out and succeeds in making a go of it, struggling countries such as Spain, Portugal and Italy will be edging toward the door. A UK referendum on Britain’s withdrawal from the EU could make the Union very fragile indeed. A less discussed component of this standoff is geopolitical. Moscow is waiting in the wings to see how this contretemps turns out. Earlier this month, Russia and Greece signed a gas pipeline deal and Russia has, in principle, extended a hand with a stated willingness to consider its own bailout deal in terms of loans. The EU and the IMF aren’t immune to geopolitical factors. On the contrary, Ukraine which isn’t a member state has been showered with aid and loans, while Greece comes in for humiliation.
Will they conform or will they take a leap into the unknown? That’s for the Greek people to decide. May they choose wisely and well!
