The 'NO' Vote in Greece, and Realistic Options for the Mess

The outcome of the Greek referendum was never really in question. The meaning of the vote most certainly is.

The Greek population shocked nobody when they voted to not impose stringent austerity plans on themselves and chose to believe its leader’s claims Greece could demand a better deal from creditors with this vote.The Greeks already owe billions and have defaulted on the debts they already have—not a good position from which to request another loan.

The only reason there is any interest at all in continuing the talks with Greece is that the European Union doesn’t want to be forced to kick the country out of the eurozone and perhaps the EU as a whole. That is not what the EU was designed to be, but there is reluctance to keep a nation in the organization when it chooses not to play by the rules.

If the Europeans capitulate and offer a bailout without getting any commitments at all from the Greeks, the threat to the EU is palpable as a precedent will have been set for other nations in deep debt. This could utterly destroy the financial footing of the eurozone.

The Greek economy is going to fall apart completely in the weeks to come, and there is nothing the Tsipras government can do about it. The “NO” vote was far from unanimous with some 40% voting “YES.”

Creditors have expressed willingness to provide more money if there is a commitment to budget discipline and some intent to make good on the debt. The Greeks have not been willing to make that promise and, thus, the stalemate has arrived. The EU may well agree to less than originally required, but that will come at a price.

There are three choices now as far as the Greeks are concerned. The first is that Tsipras continues to be the chief negotiator and that he tries once again to get the troika to change their terms. The second choice is to replace the abrasive finance minister with another ideologue and continue to poke at the Europeans. The third option would be to appoint a technocrat to the post and hope that this calms the talks down. There have been calls for the Tsipras government to emulate Brazil and pick somebody like Joaquim Levy, but that has its risks as well, as Brazil shows. Levy has indeed reassured the investment community there, but his decisions have infuriated the leftist base of the Brazilian president, whose approval ratings have never been lower. The betting is that Tsipras tries to do this on his own, difficult as that may be. 

- Chris Kuehl, Ph.D., NACM economist and co-founder of Armada Corporate Intelligence

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