As it turns out, the Greek crisis ends not with a
bang, but with a referendum.
It has been easy to ignore the doings in Greece for the last few years, with the perpetual series of
summits in Brussels that never seem to resolve anything. But it’s time to pay
attention. These next few days are shaping up to become a transformational
moment in the 60-year project of building a unified Europe. We just don’t yet
know what sort of transformation it will be.
The immediate headlines that got us to this point are
these: After an intractable series of negotiations over a bailout extension
with Greece’s creditors, the nation’s left-wing government left the table
Friday and said it would hold a referendum on July 5. Greek leaders think the
offer on the table from European governments and the International Monetary
Fund is lousy, requiring still more pension cuts and tax increases in a
depressed economy, and intend to throw to voters the question of whether to
accept it.
Whatever
the exact phrasing of the question (and assuming the referendum goes forward as
planned), it really boils down to this simple choice:
A “Yes” vote means that Greece will continue the
grinding era of austerity that has caused so much pain to its citizens over the
last five years, in exchange for keeping the euro currency and the monetary
stability it provides.
A “No” vote almost certainly means that
the country will walk away from the euro and create its own currency (which
will surely devalue sharply), bringing financial chaos in the near term but
creating the possibility of a rebound in the medium term as the country becomes
more competitive with its devalued currency.
The Greek government, led by Alexis Tsipras, disputes
this framing, and argues that Greece could in fact reject the creditors’ offer
to extend the bailout program while sticking with the euro. Events over the
weekend show how untenable that is. Thousands of Greeks lined up to withdraw
euros from money machines, and the European Central Bank said it would not
increase the size of the emergency lending program that Greek banks have been
using to secure euros.
Ergo, the Greek banks are, or will soon be, out of
money, and the E.C.B. will be disinclined to open the floodgates again in the
absence of a bailout deal. That’s why the Greek government has effectively
frozen its financial system, closing banks and the
stock market on Monday.
Capital controls that limit people’s ability to
withdraw and move money out of the country are, it is safe to say, not a sign
of a healthy currency union. It would be hard to call the dollar the national
currency of the United States if laws prevented me from taking Maryland dollars
and depositing them in a Virginia bank.
The developments show how little power Mr. Tsipras and
the Greek government really have if they want to keep using the euro currency,
as their campaign platform called for and as is widely popular in Greek polls.
European leaders in Brussels and Frankfurt and Berlin may not be fair, or
democratic, and there’s a good case that the economic policy they are advancing
is not very sound. But they hold all the power in this situation, and are leaving
Greeks to decide between two bad options.
For years Greece has muddled along with a depressed
economy and an endless series of bailouts and austerity. It’s fine to play the
blame game over how public debt got out of control in the country, but by the
time 2010 came around what was done was done, and the human consequences of
austerity have been grave.
The Greek government apparently agrees that the
definition of insanity is doing the same thing over and over again.
What happens now? This isn’t 2010. European banks,
governments and financial markets have had years to develop contingency plans
for what will happen if Greece exits the euro. There may be a middle ground,
too, in which Greece semi-exits the euro: Imagine keeping the currency but with
such strict and permanent capital controls that Greek’s euros are actually a
different currency from the one used in Paris or Rome.
Expect the E.C.B. and European institutions to deploy
enormous financial firepower to prevent a Greek exit from spilling over to
Portugal and Italy and Spain. But saying that this won’t be a Lehman
Brothers-style economic catastrophe isn’t the same as saying it would be a good
thing. In geopolitical terms it would push Greece closer to a hostile Russia.
It would set a precedent that the European currency, and the European Union
more broadly, is more fragile than its leaders would like the world to think.
The world should be rooting for a happy
outcome to this Greek tragedy. It’s just not at all clear what a happy outcome
would look like at this point.
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