Greece, cont’d

Financial Times reports:

Greece’s anti-austerity government scored a decisive victory in Sunday’s referendum as voters backed its call to reject a compromise with international creditors, raising serious doubts about the country’s ability to remain inside the eurozone.

The No camp won 61.3 per cent of the vote and was victorious in every region of the country, a remarkable political exploit by Greek Prime Minister Alexis Tsipras.

So the gambit is potential working in Tsipras/Varoufakis’s favor, though much remains unclear. The goal is obviously to find a way to effectively pressure the Troika into agreeing to restructure Greek debt. Whether this move will succeed in doing so is totally unclear, with many analysts suggesting that Syriza is failing in its objectives. Yves Smith wrote a strong critique of the recent moves by Athens, whose tactics she sees as a failure:

the [European Central Bank] has now laid siege to the Greek economy. There is no scenario under which it will not prevail. If it shows any mercy, it is because it is to the ECB’s benefit, not Greece’s. The open question is whether the ECB breaks more banks than it intends to or forces a Grexit by accident.

The ECB’s incentives are to get a government that the Eurozone leaders deem to be workable in place. That means one with Syriza out or in a very diminished position, while keeping Greece in the Eurozone, since a Grexit entails unnecessary risks and complications and would therefor be best avoided.

Should Greece actually leave the EU then? This is a question on everyone’s lips. The consequences of doing so are difficult to predict with strong accuracy, but they are almost certain to be dismal, beginning with the overnight failure of the Greek banking system. Restarting the economy after exiting the Eurozone might prove a worse fate than staying the the Eurozone and facing further austerity, itself a recipe for economic disaster. Here again is Yves Smith:

The problem with a lot of the cheerleading for an exit (see the comments section of Joseph Stiglitz’s piece in the Guardian for some good examples) is that they conflate the idea of an exit in theory with the reality of an exit in the current real-world case. The two are not the same.

I see exit as being the equivalent of surgery. The patient may be very ill, but it matters a great deal who performs the surgery and under what conditions. In this particular case, the surgeon is inexperienced if not downright naive, the timetable is too short, and the conditions are precarious. With a competent government, significant lead-time, and an economy not on the brink of collapse, exit may be net beneficial; under the current circumstances, though, it could turn out to be a total catastrophe.

…As horrible as things will become, a Grexit will only be worse. None of the economists blithely recommending a Grexit have bothered to examine payment systems issues, what it takes to do software development in a mission critical setting (which payment systems are), how hard, time consuming and costly it is to resolve banks and introduce a new currency, and how an economy goes into free fall when you can’t import due to banking system failures and/or payment system issues. And that means you need to look at imports in detail and what happens if you don’t get them or can’t buy much/enough of them. Greece will have trouble fending off starvation for at least a year, for starters.

In other words, there’s a reason the Greek government says “no Grexit”. It’s not just to appease the voters. It’s also that some of the officials, particularly Varoufakis, understand or at least have a sense of what a catastrophe it would be.

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