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Grexodus: Last Act


Polls have opened all over Greece and will close at 1900 Eastern European Time (EST+7). Prime Minister Alexis Tsipras cast his ballot early in the morning undoubtedly checking “óxi” – no – in rejection of the creditors’ demands. For the leader of Syriza and for his Finance Minister, Yanis Varoufakis, the question is clear: accept humiliation and bow to the “financial terrorism” of the creditors or reject the diktat of the Eurogroup and renew the government’s popular mandate with a clear message to the Troika that Greek sovereignty will not be renounced and that they need to come back with a better deal.


The creditors are also clear on today’s vote: it is an in/out vote on Euro membership. If the Greeks vote “yes” then  ELA will be restored, funding will be made available, and a new deal will be brokered (not the old deal, that one has expired). Of course, the objectionable Syriza government must go, which was the whole point of everything that’s happened since the January election. If the Greeks vote “no”, then its bye bye Euro. There will be no new deal; ELA will not be renewed and Greek banks will not be able to open: and the Greek government will be forced to issue a new currency in order to meet its domestic obligations and keep its economy afloat.

In between these contradictory visions of the immediate future are the Greek people, who are thoroughly and understandably confused by it all. They are voting today to accept or reject a proposition that has already expired; they are being asked by both parties to take things on faith. The creditors hold the stronger hand: they have already demonstrated their willingness to go to the brink and they control the funds. The Greek government argues it holds a “nuclear option”: the threat of defaulting on its entire debt, all 300 billion euros of it. The creditors will not only lose that money, they will be forced to recapitalize the European Stability Fund with public funds, because the ESM is backed by the sovereigns themselves. That will not be popular at all: it would, for example, add almost 2% to the Spanish debt which is already above 100% of GDP and growing. That won’t be a problem financially since the Spanish government will simply issue some more 10 year or 30 year bonds and the ECB will buy them all, as it has been doing since last year. But it will be highly unpopular politically.

That is not the limit of the potential financial damage[1]:


  • 131 billion euros to the ESM (formerly the EFSF);
  • 89 billion euros in Emergency Liquidity Assistance (ELA);
  • 122 billion euros from various other programs and funds the Greek government owes money to;

This is the Greek “nuclear option”: a big enough bomb that the Eurogroup and IMF would rather come back to the table with a couple of more concessions rather than face the political costs of swallowing this large and bitter pill. The success of his strategy depends on the Eurogroup calculating costs in the same fashion as Greece: if they also consider the probability of Spain and Portugal, even Italy, demanding debt relief should it be offered to Athens, then the calculus changes and the Varoufakis gambit may well fail. It also requires that the Greek people willingly sign up for a return to the drachma if the gambit does fail, for that will be the inevitable outcome of a “no, no”: in other words, a Greek “óxi” followed by a Eurogroup “nein”. This is the most likely outcome of a Greek “óxi”: I really can’t see the Eurogroup bending to what amounts to blackmail.

One hopes that the Greek government has a plan “B” in the case of the double negative; for setting up a new currency “on the fly” would not only be complete anarchy, it would be criminally negligent.

It would be nice if this could be framed as a morality tale: the bad Greeks with their corruption and profligacy now demanding a free ride; or the bad Eurogroup with their austerity, their bankers’ coups and their neo-fascist disregard for the sovereign rights of the Greek people. Their is truth on both sides, but this has never been a question of morality except in the battle on the streets for hearts and minds. It is a question of power; and power today all resides with the Eurogroup. Mr. Tsipras has grossly overplayed his hand; what’s more, he has blundered badly by focusing too exclusively on the question of the debt. After all, he was elected not only to get a better deal for Greece from its creditors, but also to put an end to oligarchic rule and corruption within Greece. Mr. Tsipras could have come back to his electorate and said: “we cannot have both the Euro and an end to austerity”; there would have been a risk of backlash from the “hard left” faction of Syriza, but they could have been mollified by being set to the task of rooting out oligarchs and their wealth to fill the coffers. As I wrote back in February, this was always going to be the mostly likely result of negotiations and a strategy that would have allowed Syriza to fulfill at least half of its mandate. By making it all about the debt, he has backed himself and his country onto the edge of the abyss.

One of the worst and most ironic aspects of it all is that Syriza’s mistake have only made the oligarchs stronger, both politically and financially. For if the people vote “naí” and the government falls, it is likely to be replaced by a coalition that includes New Democracy – the only faction the Eurogroup is on speaking terms with. Whereas if the outcome is “óxi” and Greece is forced out of the euro, the common people will lose a vast amount of wealth when it is redenominated in new drachmas, but the the oligarchs have already moved all of their liquid assets out of Greece: their relative wealth will be multiplied by the exact inverse to the new drachma’s depreciation. Heads I win, tails you lose.

As I write this, all six major Greek TV stations are reporting a lead to the “no” vote. Regardless of the outcome however, this is the last act of the current Eurocrisis, which began in earnest in 2008 when the collapse of Lehman Bros began to cascade around the world. No matter what happens, “óxi” or “naí”, the eurozone will not be able to go back to business as usual. The exact impacts are still uncertain, but they will ripple across the region and become the catalyst for the Eurocrisis Phase 2. As Sir Winston Churchill said:

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”[2]

Sources and Notes

[1] Eugen von Böhm-Bawerk, “King or republic; óchi or nái           ? That is the question…”, Bawerk.net, 04 July 2015

[2] Sir Winston Churchill, “The Bright Gleam of Victory,” 10 November 1942

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