Sunday, July 05, 2015

Greece. Referenda, and Uncharted Waters

Greece has entered uncharted waters ... sort of.  If you need a quick run down, you can check this report. Here are the basic  facts. Greece has overwhelming voted (in a national referendum) to reject the EU's demands for further austerity measures in order to repay emergency bailout loans. These measures, according to the IMF, are already crushing the Greek economy, keeping unemployment above 20% (for years), and promising only more of the same for years to come. What Greece was being offered as a country, in other words, is a crushed economy that funnels capital back out of the country in exchange for stability and the promise that if you don't accept this ... things could get worse.

 I have been asked about Greece a number of times over the last few days, which is itself rather odd since I have no special expertise and am not usually asked about it. Here, however, is what I think. I think the refusal of Greeks to accept further austerity measures is right. And, I think those who were arguing that doom and disaster would befall the Greeks and possibility Europe and possibly the world if Greece did not accept such measures was tantamount to dishonest blackmail. It was, in other words, an effort to ramp up the consequences that might happen if Greece should fail to "play ball." Now that Greeks have stated clearly that they will not play by the rules of Europe's big economic powers ... we will see, but I predict, that disaster will not happen. And, it is possible that the Greeks refusal to be blackmailed and bullied could actually be the beginning of the real and fundamental reforms that financial markets in Europe and elsewhere need. The Greek PM was quoted as saying that this referendum result was akin to ... well ... I don't know, unicorns are rainbows:

"Today we celebrate the victory of democracy," Tsipras said in a televised address from his office, describing Sunday as "a bright day in the history of Europe." (from the above cited news story)

It is not that, but it might be a step and a strong one away from the legacy of austerity that has followed the world since the 2008 crisis. How so? Two points are important.

First, this referendum was about whether or not the Greeks would accept austerity measures imposed by outside authorities (through the Greek government) in return for past financial support and potential future support. The idea here was that the Greek people had no say in the matter. It was a decision negotiated between governments and unelected public banking officials in which the ordinary people who would necessarily pay the price of austerity were left out in the cold. They had no voice whatsoever. On any level, that is not democratic, no matter what your definition of democracy. Regardless of what we think of the results of the referendum, the Greek government said "you know what, that is not good enough. The people do have the right to have their say and to make the final determination with regard to policy." We have seen international financial institutions impose austerity policies on countries -- particularly in the developing world -- over and over again whereby the people who will pay the bills had no say. I hope that Greece has established a precedent. In this era of supranational governance and globalization ... democracy still has a place and that place is vital in those areas of public policy that are most fundamental to the people.

(I don't, by the way, always agree with what democratic majorities decide, as I will make clear in a future blog, but I don't doubt that they have the right to ratify or reject policy decisions, particularly and most importantly those that fundamentally affect the people.)

Second, the referendum shows that people, more or less, saw through the blackmail and, frankly, did not believe it. This type of blackmail happens in politics all the time. Those who wanted the Greeks to vote yes told them a bunch of things that were, frankly, not true. There might be some people who wish that they were true or wish that they could turn out to be true but ... right now at least, they aren't. The referendum, regardless of what one was told, was about whether or not the Greek people would accept the austerity measures imposed on it by European banking institutions and other governments. It was not about whether or not Greece would repay its loans. Greece is in default. It was not about whether or not Greece would negotiate a new financial deal (indeed, the government repeatedly offered to do so). It was not about whether or not Greece was withdrawing from the Euro. It is not and the Euro remains its currency.

What was important about this vote was that the people who voted saw this referendum for what it was. Those people who argued that the Greeks needed to accepted the dictated austerity measures tried to get their way through the referendum -- or, perhaps to even convince the Greek government to *not* have referendum -- by ramping up the stakes by professing doom, particularly in the media. A "no" vote would spell economic disaster for Greece; its exit from the Euro. It would be Greece thumbing its collective nose at Europe.

It was, as I said, none of these things. These things were rhetoric designed to hold sway and were, rightly, seen as that. In other words, the problems that we have experienced with international financial markets as a result of this referendum are *not* the result of the referendum but the result of the raised stakes on the part of those who wanted a truncated democracy and Greek acquiescence.

What should the proponents of a "yes" (that Greece should accept the dictated deal) vote have said. If they were honest, they would have said this:

You should vote yes. This will give you further austerity. You should not vote no. If you do vote no, however, nothing really bad will happen. There will be some instability in financial markets but governments can deal with that (say, by closing markets for a short period of time) if they want. But, you will not be leaving the Eurozone and your economy will not sink into the sea. We will continue to loan you money and will have to negotiate an agreement that we both can live with rather than one that you can't. In other words, a no vote will slow down a deal and force us to change our position but that is really the only serious longer term consequences.

Now, I could be wrong. I suppose disaster might hit Greece but I seriously doubt it. I suspect that the proponents of a yes vote will point to each and every financial problem that pops up in the next little while and say it is a result of this vote but let us wait and see where we are in a year's time. For Greeks, the truth of the matter is that it cannot get much worse.

What will happen now? Two important things have been established. Democracy is important and doom does not fall because the heads of European banks say it will. Greece will negotiate a new deal, ideally that will include some level of debt forgiveness, and the country will, slowly, start to emerge from the economic  recession under which it has lived for years. Hopefully, we will all have learnt a lesson.
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