Tuesday, July 07, 2015

7 July 2015 Recap: Greferendum meets Grexit

July 7 was a crucial date for Greece crisis. In clear terms, Europe said, “I see your Greferendum and I raise you a Grexit.”

The consensus coming out of the Eurogroup and the Summit are that: (1) debt relief is not on the table, a position that the Greek side seems to have accepted (willing, instead, to accept another promise for debt restructuring later); (2) fiscal measures will have to account for the severe deterioration in the Greek economy, which means they will be harsher than the measures that the Greek people just rejected; and (3) the Greek proposal will need to include not just an accounting exercise but a broader reform package that Greece has stalled on (e.g. privatizations, product market opening, etc.)

By all accounts this will be hard for SYRIZA and for Tsipras to swallow. Debt relief has been a rallying cry in the search for a “viable solution,” and the prime minster will struggle to convince Greeks that a deal without debt relief is a “victory.” Second, a third memorandum will be painful politically and might shatter SYRIZA. And third, SYRIZA’s platform goes against every reforms that the Europeans and the IMF might ask for. In short, this is not a good spot to start from.

Yet, Tsipras is dominant in Greek politics right now: he has enormous political capital, he is trusted by the people, and he has an ability to spin. If he comes back from Brussels saying “it is this or Grexit,” he could win a vote in parliament, especially if be brought home a broader package that included European investment funds. The battle in parliament will be bloody, and he will split SYRIZA, but he can probably survive the vote by getting support from other parties.

The most important question right now is this: Does Tsipras want Grexit? This is the question that most divides Greeks I speak to: some people think that he sincerely wants to stay in the Eurozone and will do everything in his power to accomplish this; others think that he is executing a well-orchestrated plan to take Greece out of the Eurozone; others still think that he wants to avoid Grexit but is willing to tolerate it if it is better than the alternatives (a new, harsh bailout); and others think that while he may want to avoid Grexit, he is not capable of controlling a crisis that leads to Grexit.

My own view on this is mixed and, to be frank, fluctuates. I have never believed in the well-orchestrated plan for Grexit, even though I struggle to answer the question: “if Tsipras wanted Grexit, what would he have done differently?” I understand that SYRIZA’s economic platform is not viable in the context of the Eurozone, although I am not sure that SYRIZA sees it this way (SYRIZA seems to think that by curbing tax evasion, Greece will raise billions of euros that will pay for a state-led economy and generous welfare state). Of course, there are elements within SYRIZA who strongly support a move to the drachma, but the prime minister has never hinted as much to my knowledge. In my gut, I believe that Tsipras understands the harsh historical judgment of pushing Greece out of the Eurozone and even the European Union, and I see some efforts to become more conciliatory after the referendum. I have always believed that Grexit would come as a result of fatigue or an accident, and it seems we are at this stage now. This is not a settled question yet, but it is clear that this question, above all, is the only one that matters.

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