Greece referendum: did the euro just die at 4pm?
The EU refused to grant Greek banks extra credit, forcing their closure for seven days until the outcome of a national referendum on the bailout called by Greek prime minister Alexis Tsipras. Paul Mason, Economics Editor for Channel 4 and author of Why It's Still Kicking Off Everywhere, writes on how the Eurozone has reached its nadir.
We’re staying in Europe! says the headline of the Greek liberal paper Kathimerini today.
While the far left government will pose the referendum as a vote for or against austerity, the right will say it’s an in-out vote for the single currency and the EU itself.
The problem is, at around 4pm on Saturday Europe changed. Faced with a proposal from the Greeks to extend the existing bailout until after 7 July, the Eurogroup refused.
At this point chairman Jeroen Dijsselbloem announced there would be “a meeting of the 18” – that is the Eurogroup without Greece. Asked how such a meeting could issue a communique he replied, according to a Greek witness “we can do what we like since we are an ad hoc body”.
The Brussels press corps dutifully reported that the Greeks had “walked out”. But if the Greek account is right, what happened at that moment was the psychological breakpoint of the Euro.
The political willpower had already ebbed. The Greeks haggled over the fiscal details all week but were minded to sign an €8bn austerity package if it could be sold as (a) redistributional and (b) accompanied by a promise to discuss restructuring the debt.
What changed? By Thursday morning it was the lenders’ document that was the basis of discussions with the Greeks allowed to propose amendments. But when the elected ministers of the Eurogroup saw what the EC, IMF and ECB had proposed they rowed back.
“We can’t get this through our own parliaments” they said: it’s too soft.
Since Alexis Tsipras would have struggled to get any compromise through the Greek parliament, what triggered the breakdown is – in fact – democracy.
So bleak has Europe become, so lacking in solidarity, that an agreement worked on for weeks, embodying further austerity for the Greeks and further financial solidarity by the rest, could not pass through either side.
It was this that led to what Greeks call the “rupture”. The currency arrangements of Europe no longer fit the democratic wishes of its people.
And it is not the only breakdown of solidarity. The Schengen agreement on free movement is breaking down as the European powers refuse to absorb the refugees arriving in Greece and Spain.
So what next? The Greek strategy is to attempt to go on negotiating with its lenders, through back channels, in order to resume negotiations with a strengthened hand next Monday. Whatever they say in public, the institutions, too, will try to prepare a compromise – either for Tsipras to sign or for the next prime minister if he falls.
Today’s ECB meeting is critical. There are already calls from the group of countries around Germany to cut off aid to the Greek banks today, triggering the collapse of its banking system. If that happens it will be the second phase of psychological breakdown of the Euro – in which the institution charged with maintaining financial stability and bank solvency actually creates the opposite.
It will represent the effective capture of the ECB by elected politicians, and will puncture the illusion that it is an “independent” central bank governing a unified currency.
Either way, Greeks are in for a week of financial pain and chaos. But anybody who thinks they can predict the outcome is wrong.
The normal receptors for information do not work in Greece. The press and TV are owned by billionaires. Not unusual, but in Greeece there’s no regulation, so the incessant talk channels – which pay no tax, and no licence fees for the airwaves – will simply churn out a bleach-blond version of what their bosses want to hear.
Most Greeks, including all those inclined to vote No in the referendum, have mentally switched off from the mainstream media.
Instead this will be a battle of rumour, emotion, mass rallies and iconic speeches.
By posing the question: do you accept the deal offered by the creditors, Alexis Tsipras tosses a handgrenade into the right and centre right. The old coalition government fell because it could not accept a much tougher deal.
Many of the technocrats and young professionals who have thronged to the pro-Euro rallies, which will now become the Yes camp, are sickened to be surrounded by cashmere wearing oligarchs – the very people the young centrists think ripped the country off and built the debt mountain.
If the week starts with chaos, and gets more chaotic as the ECB grinds the banks to pulp, the outcome of the election will depend on who Greeks blame. That in turn will depend on the deeply memetic conversations taking place in the kafeneions, vineyards, hotel staff canteens.
But both sides will, effectively, be voting for options that don’t exist.
Tsipras told his voters Syriza could negotiate an end to austerity and debt relief within the Euro. He and Varoufakis believed this: because the Italian PM Matteo Renzi had told them it was possible; and Hollande, and also the US State Department. The hard left of his own party were existentially anti-Euro, and pro Moscow, and he was determined to prove them wrong. So it’s been a hard swallow for Tsipras to make this break.
But his new position: vote No and strenghten our hand in pursuit of an austerity-lite deal within the Euro, may no longer be based on possibility. If the ECB is just a cypher for what 18 parliaments will pass, and the Commission powerless, and if north European public opinion hardens against Greece, then the best a No vote might produce is an offer from Brussels and Berlin to fund a “velvet exit” – ie a controlled and subsidised return to a national currency.
No less delusional is the position of the Greek right. When they say “We want Europe” what they mean is: we want Europe to go on ignoring corruption, tax evasion and oligarchy on a grand scale, and to go on crashing our economy at the expense of the poor. We want, in effect, says the Yes campaign, the Europe that caused the problem.
Though they’ll join the Yes movement, many Western-educated professionals and business people will do so warily because of this.
And it will get fractious. Last week, when anarchists disrupted the pro-Euro demo, burning the EU’s flag, there was a standoff between them and a largely nouveau riche crowd. The left chanted “EAM, ELAS, Meligalas”.
EAM was the mass resistance movement in World War Two. ELAS was its military wing, led by communists, which beat the Nazis. Meligalas was a village where in 1944 the partisans defeated a battalion of Nazi collaborators, executed some, and failed to prevent others from being lynched by local villagers.
- this is an article that was first published on Paul Mason's Channel 4 blog.