A few Implications of the Greek “No” Vote

Although a good proportion of the Greek population appear relieved at the clear “no” vote in answer to the Euro requests for austerity conditions for the much needed bail-out, the result has dismayed its European partners.  The Prime minister’s obvious delight at the result might have been better moderated if someone had pointed out to him that the brief statements explaining the two options were highly loaded and did not address the issue of why the Euro Zone partners felt they needed the austerity conditions in the first place.   It should also worry the prime minister that a sizeable proportion of eligible voters either did not vote or voted for the yes option.

The Greek situation is now parlous indeed. Even with the requested multi-billion bail-out the Greek government can do little more than pay the interest on existing loans and without radical restructuring for its tottering economy, conditions were bound to degenerate further. Because the Greek banks are rapidly running out of cash it is true that they need external assistance for survival, but the European Central Bank and the IMF are reluctant to provide this assistance when the apparent past lack of ability to meet promises or even display evidence of a practical intention to reform the economy means that good money is thrown after bad.

Although the Managing Director of the IMF, Christine Lagarde, says the IMF would be ready to assist Greece if requested to do so it is far from clear how much assistance would be forthcoming. Even more worrying for the Greeks, the European Central Bank said late on Monday that they will no longer extend existing credit to the Greek Banks and instead have raised the minimum level of securities on future loans before an arrangement can be contemplated.

The insults that the Greek Prime Minister and Minister of Finance heaped on their creditors in the days leading up to the referendum will not have encouraged the European politicians to return with serious intent to the negotiating table. As it is, Greek Finance Minister Yanis Varoufakis, whose direct denunciations of creditors a few days ago had been upsetting many of his euro zone colleagues, has already had to resign, saying Prime Minister Alexis Tsipras believed it would help smooth the path to a new aid deal. That reason is hardly likely to surprise most commentators, but it does raise the question of whether earlier amateur and ham fisted outbursts showed a total lack of understanding of the situation at the highest level.

Varoufakis’ removal will not necessarily solve the main problems. Remember Angela Merkel now needs to seek permission from her German Government before she is able to support bail-out assistance – and what is more her politicians would be all too aware the all important German wishes have been ignored by the Greek government who held their referendum despite the German insistence that they had not met the required deadline and that a No vote in the referendum would thereby result in Greece having to withdraw from the European Union. Angela Merkel’s irritation is not going to help a speedy resolution.  Indeed she told waiting reporters at Tuesday’s meeting between the European representatives of the Eurozone and the Greek Prime minister Tsipras, that there was no new basis for negotiation.   After the first part of that meeting an exasperated delegate from Belgium said that there were eighteen present who acted as if the matter were urgent and one who did not.    Although the new Greek finance minister, Euclid Tsakalotos, was more courteous and conciliatory than his predecessor he was reportedly not offering any change to the Greek position which had already been rejected.  A BBC report stated at the same meeting that the Greek Finance minister had arrived at the meeting with no detailed intended policy but rather with his only notes scribbled on a sheet of hotel notepaper, an action which seems incomprehensible to outside observers given what was at stake.  One of the bullet points on the note read: “No triumphalism” presumably  in recognition that the crowing about the democratic mandate of the referendum had already raised the hackles of Euro zone partners.   A little more thought might have reminded the Greeks that the other eighteen Euro Zone Partners also have democratic worries of their own and nothing in the policies to date have even begun to make allowances for their probable feelings.

Mind you it is still a little precious of the now reformed Germans to forget so soon after the second World War that a good part of their current solid economic position is because a good part of their otherwise insurmountable post war debts were forgiven by the victors in than war.   It will be interesting to see if that particular memory leads to a more generous attitude in the present crisis.

Part of the now needed reform will be difficult in that one of the most serious internal problems for Greece is that there is a huge problem with unpaid taxes. The only group that are paying their taxes are those like the civil servants who have their income taxed at source. For example there are only a handful of self declared millionaires despite the visual evidence of a good number enjoying an extreme of luxury. Because the current coalition is an uneasy alliance between the small but vociferous extreme right wing (including some neo Nazis) who protect the interests of rich on one hand and the extreme left wing socialists who insist on State support even for workers on the other.  Without immediate and radical change it will be difficult to collect the necessary taxes or forcibly correct the shoddy accounting which has characterized Greek business right up to Government level.

One recent admission suggests a very low level of taxes were being collected but for the most part, the tax defaulters are not being brought to account.  The unmasking of consistent misreporting of levels of debt (eg losses associated with the Greek sponsorship of the Olympic Games) makes it difficult for potential creditors to trust the Greek government, particularly as, despite numerous promises over the last decade, no substantive reform has been forthcoming.

A further complication is that the European nations being asked for bail-out assistance have voting populations who take their personal financial responsibilities far more seriously than has been the case for the Greeks.    For example the German people have a very low level of debt default and their voters have been telling their politicians that since part of the Greek problem has been the lack of personal responsibility of tax payers there is less reason to use what in effect is largely German tax payer money to bail out the irresponsible.

While the banks are running out of money and local businesses in Greece are suffering from an extreme cash shortage, the powerful rich in Greece are unlikely to support the banks if those banks seek to raid large accounts to keep the economy afloat. The alternative option of setting up an internal monetary system like the Drachma, then devaluing the currency to make tourism more attractive for overseas holiday makers might well provide a short term boost for the economy but since Greece provides few exports and relies heavily on imported goods from abroad (eg most food and fuel), devaluation is more likely to worsen the balance of payments. Curiously, even if the introduction of the Drachma succeeded in restoring confidence in the economy, it would probably be unpalatable to the rest of the current Euro Zone in that it then opens the possibility that some of the other cash strapped partners might seek the same option.

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