Greek banks and the stock exchange will be shut on Monday after creditors refused to extend the country’s bailout and savers queued to withdraw cash, taking Athens’ standoff with the European Union and the International Monetary Fund to a dangerous new level…
In the early hours of Saturday, Tspiras asked for extra time to enable Greeks to vote in a referendum on the terms of the deal [which, among other things, requires Greece to cut pensions and raise taxes]…
In economic powerhouse Germany, other southern states that have suffered austerity in return for EU cash, and poor eastern countries with living standards much lower than Greece’s, many voters and politicians have run out of patience.
(Reuters, June 29, 2015)
Alas, the delusional hubris of the Greeks is such that they are convinced:
- That keeping Greece in the EU is far more important to Europeans than it is to them.
- That there’s no end to the financial sacrifices Europeans will endure to protect them from themselves by preventing a Grexit – perhaps banking on Greece’s acclaim as the cradle of civilization.
Nothing betrays this hubris quite like Greek Prime Minister Tspiras reacting to the EU’s refusal to extend bailout cash by calling for a “bank holiday” … every day this week. In fairness, though, if I were Tspiras, I’d be urging hedonistic Greeks to run to the beach to divert them from running on the banks too.
At any rate, in light of these latest developments, I’ve decided to reprise my commentary, “Elections Show Greeks Want to Have Euro Cake and Eat It Too,” January 26, 2015. Not only because it presaged these developments, but also because it attests that I warned the EU years ago about the inherent futility and moral hazard of trying to bailout Greece in the first place.
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Yesterday, Greece finally held its anxiously awaited general election, which many regarded as a referendum on its membership in the Eurozone.
The consensus was that a win by the ruling New Democracy party, headed by Prime Minister Antonis Samaras, would mean more of the bitter austerity medicine Greeks have been taking for years as dues for continued membership; whereas a win by the opposition Syriza party, headed by Alexis Tsipras, would mean no more austerity – even if that forfeits membership.
Syriza won.
Tsipras has promised to renegotiate the country’s 240 billion-euro ($270 billion) international bailout deal, and seek forgiveness for most of Greece’s massive debt load. He has pledged to reverse many of the reforms that creditors demanded — including cuts in pensions and the minimum wage, some privatizations and public sector firings — in exchange for keeping Greece financially afloat since 2010.
(The Associated Press, January 25, 2015)
Except that Prime Minister Samaras himself spent years trying, to no avail, to renegotiate Greece’s bailout terms with these very same creditors – the “Troika” of the European Union, the International Monetary Fund, and the European Central Bank.
IMF Managing Director Christine Lagarde told CNBC Wednesday, before flying to Athens, she had no interest in adjusting Greece’s bailout terms.
‘I’m not in a negotiations or renegotiations mood at all.’
(UPI, July 6, 2012)
Therefore, either Syriza’s supporters are in for a rude awakening – as Greece’s indignant refusal to comply with bailout terms forfeits membership; or Troika members will swallow their institutional pride and allow the EU’s most vexatious debtor nation to dictate repayment terms. Trust me, you’d be forgiven for analogizing this standoff to an unruly child (Greece) refusing to eat the vegetables (austerity measures) his mother (the Eurozone) insists he must….
But I went on record years ago – not only warning that it would come to this, but also urging Eurozone leaders to cut their losses and kick Greece out before its debt contagion metastasizes.
Here, for example, is an excerpt from “Greece: a Tumor Growing in Europe,” May 15, 2012.
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I find it stupefying that Greece is causing so much existential angst in Europe. Mind you, I used to accept the prevailing view that, like JPMorgan Chase, Greece is just too big to fail; moreover, that if it failed others would surely follow.
I am now convinced, however, that this transformative logic simply does not hold. Not least because the more appropriate analogy is not the risk of a big bank failing, but the fear of a little tumor growing. And in this context, cutting Greece out of the Eurozone is the best way to forestall the self-fulfilling prophecy of its failure triggering a contagion/domino effect; you know, the way one might excise a metastasizing (malignant) tumor out of the body…
Greece is refusing to take the only medicine that stands any chance of putting the cancer it represents into remission. Frankly, this refusal alone demonstrates why it needs to be excised out of the Eurozone…
Greece should be left to its own devices to become the terminally debt-ridden, dysfunctional and ungovernable mess in Europe that Haiti has been in the Caribbean for centuries…
Despite the writing on the wall, European leaders have been implementing extraordinary measures to keep Greece on financial support, fearing that, if Greece fails and exits, other Eurozone countries like Portugal and Spain would follow. Whereas they should have been implementing measures to make Greece’s inexorable path towards failure and exit so painful for Greeks that other countries would want to avoid going down that primrose path like the plague.
This is why the only thing I find newsworthy about this Eurozone debt crisis today is the extent to which countries like Germany and France have allowed the financial contagion Greece represents to metastasize. The situation is clearly critical now.
So instead of begging Greece to take the medicine to save both itself and the ‘euro project,’ European leaders should be scrubbing for the surgery that is necessary to cut out Greece to save the Eurozone. Greece is not too big to fail.
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More to the point, though, here is how I characterized the congenital arrogance, which not only makes Tsipras think he can renegotiate bailout terms and get massive debt forgiveness, but also made voters pin their country’s fate on his impudent promises:
Greece may be the cradle of civilization, but it’s being regarded throughout Northern Europe these days as little more than a beggars’ colony. This is because Greece is now looking to richer member states of the European Union, like Germany and France, to bail it out of an existential financial mess…
[R]ich member states in the North believe that their poor relations in the South have nothing to blame for their financial woes but their own ‘Club Med’ approach to fiscal discipline…
You’d think that having to go to their betters in the North – hat in hand – would humble the Greeks. Instead, public sector workers have gone on strike in a self-indulgent effort to pressure their government against imposing any austerity measures as a condition for receiving a bailout package from the EU (and IMF).
(“Greece Just Another Panhandling PIG in Europe,” The iPINIONS Journal, April 29, 2010)
Is it any wonder, then, that a majority of Greeks bought Tsipras’s promises hook, line, and sinker? You know, “money for nothing and the [kicks] for free,” with apologies to Dire Straits. This, despite Samaras pointing out all kinds of silver linings in the dark austerity clouds that have been hovering over Greece for so many years. This election result is rich with irony in this and so many other respects.
In any event, I remain convinced that the best way forward is for the Troika to let Tsipras lead his people down the primrose path into national bankruptcy, and leave them to suffer all that forfeiting membership in the Eurozone (aka, a “Grexit”) entails. It is noteworthy that the EU’s most powerful and influential member finally seems prepared to do just that:
Der Spiegel magazine reported at the weekend that the German government believes the Eurozone could cope with a Greek exit from the single currency and that such an outcome would be almost inevitable if the ‘anti-austerity’ Syriza party wins on 25 January.
(The Guardian, January 5, 2015)
Not to mention the untenable precedent caving in to Greece’s demands would set for Syriza-like parties that are lying in wait in other EU countries, like Spain, to demand similar anti-austerity concessions.
That said, I hope it’s self-evident that Greece does not really want to exit the Eurozone. For, in today’s globalized world, no country can afford to be an island onto itself – even if it’s composed of thousands of tiny islands. No less an island nation than England – with far greater self-sustaining resources, to say nothing of its special relationship with the United States – is struggling to contain the bombast of Syriza-like forces that would force it into a similar Russian-roulette standoff with the EU.
Syriza is just banking on Troika members being so afraid of the domino effect a Grexit might have on the EU that they will renegotiate bailout terms and forgive debts just as Tsipras promised – with his intoxicating mix of bravado, ignorance, and naiveté. The irony, of course, is that the viability and solvency of the EU depends on calling Greece’s bluff. I expect Troika members to do just that.
NOTE: European leaders would have been well-advised to heed the counsel I provided in other such commentaries as A Dead EU Constitution Resurrected as a New Treaty Is Still a Dead EU Constitution (November 13, 2007), A Europe Divided by Debt Cannot Stand (March 25, 2010), If Rescuing Greece is Necessary to Save Europe, Europe’s in Big Trouble (October 15, 2011), and Forget the Euro, Europe Itself is Falling Apart (December 15, 2011).
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With that, and continuing in the spirit of “I told you so,” I shall end by reprising this pithy comment from “Greece’s Humpty Dumpty Economy,” June 27, 2015, which really says it all:
Time to give it up Europe.
Besides, in a country famous for its ruins, leaving its economy in ruins might create the best tourist attraction yet; you know, like Cuba even without the 50-year embargo.
Related commentaries:
Greece: a tumor…
Humpty dumpty…
* This commentary was originally published yesterday, Sunday, at 3:59 p.m.