Gwynne Dyer: What's next with Greece and the euro?

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      In theory, it could still work. It only requires three miracles.

      Maybe the resounding "no" to the eurozone’s terms for a third bailout in Sunday’s referendum in Greece (61 percent against) will force the euro currency’s real managers, Germany and France, to reconsider. French president François Hollande is already advocating a return to negotiations with Greece.

      Maybe the International Monetary Fund will publicly urge the eurozone’s leaders to cancel more of Greece’s crushing load of debt. Last Thursday the IMF released a report saying that Greece needed an extra 50 billion euros over three years to roll over existing debt, and should be allowed a 20-year grace period before making any debt repayments. Even then, it said, Greece’s debt was "unsustainable".

      And maybe Greek prime minister Alexis Tsipras will accept the terms he asked Greek voters to reject in the referendum if he can also get a commitment to a big chunk of debt relief—say around 100 billion euros ($111 billion), about a third of Greece’s total debt—from the eurozone authorities and the IMF. It’s all theoretically possible. It even makes good sense. But it will require radically different behaviour from all the parties involved.

      Tsipras has already made one big gesture: on the morning after the referendum victory, he ditched his flamboyant finance minister, Yanis Varoufakis. The hyper-combative Varoufakis had needlessly alienated every other eurozone finance minister with his scattergun abuse, and it was hard to imagine him sitting down with his opposite numbers again after calling them all "terrorists" during the referendum campaign.

      The IMF’s gesture was even bigger, if much belated. It knew the eurozone’s strategy was wrong from the time of the first bailout in 2010, and it is finally getting ready to admit it.

      Normally, when the IMF bails out a country that is over its head in debt, it insists on four things. There is always fiscal consolidation (cutting spending, collecting all the taxes, balancing the budget) and "structural reform" (making labour markets more flexible, ending subsidies, etc.). All the current Greece-eurozone negotiations have been about these issues. But the usual IMF package also includes devaluation and debt relief.

      There was no debt relief at all in the 2010 bailout, and only private-sector creditors were forced to take a "haircut" (around 30 percent) in the second bailout in 2012. Most of Greece’s debt was owed to German and French banks, and that wasn’t touched. Indeed, 90 percent of the eurozone loans Greece has received go straight into repaying European banks.

      Greece’s debt is not decreased by these transactions: it is just switched to European official bodies including the European Central Bank. So the Greeks are getting no real help worth talking about, and European taxpayers are getting screwed to save European banks.

      Why didn’t the IMF blow the whistle on this long ago? Because it was not taking the lead in these negotiations, and after it took part in the 2010 bailout anyway it was deeply embarrassed. It had broken its own rules, and found it hard to admit it. It was also aware that  devaluation, usually a key part of IMF bailouts, is impossible for Greece unless it actually leaves the euro (which Greeks desperately don’t want to do).

      So the usual post-bailout economic recovery didn’t happen. Over five years Greece’s debt has increased by half, its economy has shrunk by a quarter, and unemployment has risen to 25 percent (50 percent for young people). The referendum question was deliberately obscure and misleading, but most Greeks know that the current approach simply isn’t working. That’s why they voted "no" in the referendum. It was a valid choice.

      If the eurozone authorities know that much of Greece’s debt can never be repaid (which they do), why don’t they just give Greece the debt relief it needs? Partly because Chancellor Angela Merkel knows that her own German voters will be angry at more "charity" funded by their taxes, whereas they stay fairly quiet so long as the debt is still on the books. And partly because other eurozone countries would see it as special treatment for Greece.

      Italy, Spain, Portugal, and Ireland have also been through harrowing bailout programs, and are still making proportionally bigger interest payments on their debts than Greece. Some other countries using the euro—Estonia, Slovakia and Slovenia—have about the same GDP per capita as Greece, and Latvia is even poorer. They don’t see why they should pay for Greece’s folly in running up such huge debts.

      So it really isn’t possible to predict whether Tsipras and Greece will be offered a better deal or not. It’s equally impossible to say what will happen to the euro "single currency" if there is no deal and Greece crashes out of the euro in the next couple of weeks, although the eurozone authorities insist that they could weather the storm.

      We do live in interesting times.

      Comments

      13 Comments

      robinottawa

      Jul 6, 2015 at 12:01pm

      Good to see I'm not the only one who can't see where this will all end. Thanks for the article explaining it better than I can to myself. Very valuable as usual.

      Not About Debt

      Jul 6, 2015 at 1:10pm

      The crushing debt in Greece and other countries is only a means to an end. That end is the transfer of all public assets to the hands of a few very wealthy private individuals as a prelude to the destruction of national governments.

      IMF, EC and ECB actions in Greece and other southern and Eastern European will be repeated throughout Europe, including France and Germany, and like actions are being taken around the world all in an effort to return the world to the control of an aristocracy, in this case the financial elite.

      WilliamR

      Jul 6, 2015 at 5:55pm

      Golden Dawn also wants to annex the Sudetenland and burn down the Reichstag one more time.

      N.S. Archetype

      Jul 6, 2015 at 11:29pm

      A+ for sheer originality, William.

      And why do you say that like it's a bad thing?

      WilliamR

      Jul 7, 2015 at 8:33pm

      It's a bad thing because last time around the exercise led to World War II which cost between 50 and 80 million dead, depending on whose figures you accept.

      Germany's 'share' of that total amounted to over 8% of their 1939 population and I seriously doubt that many Germans would have supported Hitler's rise to power if they'd known what it would lead to.

      N.S. Archetype

      Jul 7, 2015 at 11:38pm

      WWII was already long in motion. Judea Declares War on Germany" was the front-page headline of the March 24, 1933 edition of the British newspaper Daily Express. It was the headline for an article that announced a boycott against German goods

      The Sudetenland, severed from Germany by the Treaty Of Versailles, was over 90% German, and they where suffering abuse and even outright persecution at the hands of the (new) Czech majority. They overwhelmingly welcomed re-unification with Germany.

      And don’t go ignoring Poland’s persecution of Germans, especially in the Danzig corridor, and how Britain and France’s reassurances caused them to snub every reasonable agreement proposed to the crisis by Hitler.

      If you’re going to start with WWII causes try going back to WWI, and beyond the standard propaganda which passes for most history courses these days.

      doconnor

      Jul 8, 2015 at 7:46am

      It's one thing to have a Fascist post comments, but how are they organizing the people who up-vote him?

      Martin Gautreau

      Jul 8, 2015 at 10:31am

      Wow....so a guy openly defending Hitler actions during the 30s is getting more up votes then down votes. Dyer is undoubtedly right, we do live in interesting times.

      WilliamR

      Jul 8, 2015 at 6:37pm

      @ doconnor & Martin G:
      There's no reason to assume that each up or down vote represents a different person's opinion. I suspect that either of you could get around the validation checks and vote multiple times if you thought it was worth doing.

      @N.S. Archetype:
      What utter nonsense. A war isn't in motion until the shooting starts, and that would not have happened in 1939 without Hitler to pull the trigger by ordering the invasion of Poland.

      Cassius

      Jul 9, 2015 at 8:53am

      Put aside the racist nonsense about Syriza being anti-white, Golden Dawn's remedy for Greece's ills is a good one: leave the Eurozone and tough it out for a few years. No more privatization, etc.
      That should be Syriza's remedy. It isn't. Watch Tsipras sell out.