OXI: Troika in disarray, Greeks bearing democracy


Russell Bruce considers what’s next for Greece in the wake of that massive referendum vote against EU-imposed austerity

Greeks have delivered a clear verdict OXI (NO) – 61.31% — in support of the Syriza government’s position.

Europe is now  in disarray, the result they were determined to obtain using Greek oligarchs, an anti Syriza Greek press and sundry right wing parties has failed spectacularly. The people have spoken and Berlin does not like it.

BBC News 24 has been reporting this as a new crisis since the election of Syriza as if there had not been any Greek concern at the bailout conditions imposed in 2010 and again in 2012.

The publication of the IMF report on Greece last Thursday completely undermined the position of The Troika – European Commission, (EC) European Central Bank (ECB) and the International Monetary Fund (IMF).

Greek Finance Minister, Yanis Varoufakis, was not slow in commenting that the report backed the Greek Government’s position that talks on restructuring the debt must go hand in hand with discussions over a new bailout. Varoufakis had a summary of the report on his blog within hours including some of the technical analysis tables produced by the IMF.

The Greek anti-austerity party Syriza swept to power on a promise that it would negotiate Greek debt
The Greek anti-austerity party Syriza swept to power on a promise that it would negotiate Greek debt

Prime Minister Alexis Tsipras made full use of it in addressing the massed crowds at the OXI rally last Friday.

In a referendum a majority of 1 is a victory. Greece is a multi party democracy yet Syriza who won with 45% of the vote when elected, have now persuaded voters from the centre and centre right to back them in negotiations with Europe. Throughout Europe there a growing belief austerity does not work. Other European leaders need to pay attention as the same trends are in evidence in other EU countries and some, like Spain, face elections in the coming months.

On Friday, we learnt that European ministers pushed for this latest IMF report on Greece to be held back until after the referendum That it was published to give the Greek people this information before the referendum was down to American insistence, according to a Reuter’s report.

IMF predictions on the effect of austerity on the Greek economy have been wildly inaccurate and this report confirms the findings of their 2013 report on Greece. The IMF, then, acknowledged that they were wrong in thinking Greek GDP would only fall by 5.5%. It fell by 17%. Two years later, more austerity and the Greek economy has contracted another 8% bringing the sad tally to 25%.

Experiencing the loss of a quarter of their economy is telling the Greek people that the terms of the bailouts are not working. Yet the Troika have been arguing for more of the same medicine. We will just increase the dosage, open mouth please, – you’ll be fine!

The 2013 IMF report was welcomed by the then Greek government, New Democracy the largest party led by Antonis Samaras in coalition with Pasok as the junior partner. The Guardian reported the Greek media quoting IMF managing director Christine Lagarde in describing 2011 as a “lost year” partly because of miscalculations by the EU and IMF.

“From what we understand the IMF singles out the EU for criticism in its handling of the problem more than anything else,” said one well-placed official at the Greek finance ministry at the time.

History repeats itself and Greece is no nearer achieving economic growth.

Now the opposition New Democracy leader has resigned as opposition leader, despite taking a similar position to Syriza in 2013. He chose the “Yes” side. Perhaps he regrets not having had the bottle to call a referendum when he might have done so two years ago.

A significant statement in the 2013 IMF report acknowledges the differences between the Troika members and the influence of ministers of other member states. “The Fund made decisions in a structured fashion, while decision-making in the eurozone spanned heads of state and multiple agencies and was more fragmented.”

Clearly those differences are still in existence. As somehow the Troika managed to agree a position, the IMF can only have moved away from their structured view in the course of discussions.

What happens now?

Fragmentation is the cloud hanging over the Eurozone and the EU itself. Having attempted effectively to oust Syriza from government, it is time for European leaders to go home and think again.

The immediate Greek requirement is for the resumption of ECB liquidity to Greece’s banks. To withhold it would send the signal that Greece is going to be pushed out of the Eurozone. It is not just Greek sustainability that is on the line. The dominoes are aligned and the impact will stretch far beyond Europe.

An accommodation with Greek democracy may be difficult but the alternatives are unthinkable for Project Europe.

Asian markets are falling on the news, as they did when negotiations collapsed a week ago. The FT’s John Authers has said it could be like the fall of Lehmann Brothers in 2008 but probably not quite on that scale. Uncertainty abounds and markets hate uncertainty. ECB support in the interim providing Greek bank liquidity would settle nerves.

German’s hardline Finance Minister, Wolfgang Schäuble, is reported this evening as saying Greece could leave the Eurozone temporarily. What he means is – leave and when you have sorted yourself out you can think of reapplying for membership of the Eurozone. Leaving a currency union is never temporary.

Angela Merkel - a big influence on what happens next
Angela Merkel – a big influence on what happens next

There is no immediate plan for finance minsters to meet. That is probably wise. Angela Merkel will meet François Hollande on Monday and there will be a meeting of Euro heads of government on Tuesday.

The Greeks want the issue of unsustainable debt addressed as part and parcel of the search for an agreement. Just what is the value of that debt? For domestic reasons Germany, France and Finland who hold Greek debt do not want that question answered. They looked at the amount of it held by German, French and Finnish banks and took it off their hands because their banks asset base needed strengthening and that was an immediate priority.

The impact of the banking crisis is still being felt. Banks would have had to write the value down. Now it is sitting on EU governments and ECB balance sheets. Yanis Varoufakis understands the sensitivity and says we will pay this debt but we need longer to do so.

The ECB is currently spending €60 Billion a month buying Euro bonds to stimulate liquidity in Eurozone markets. Europe is following the path of Japan, US and UK in printing money to try to get growth back to normal levels.

After the Scottish referendum Alex Salmond, in a final footnote that has gone down in political history said, ‘The dream shall never die’.

The European dream of a stable, collaborative, prosperous Europe is in intensive care. Perhaps it needs an outsider to help. Alex Salmond would make a fine peace seeker and someone at home with world leaders.