June 27, 2015
After five months of hard negotiation with little progress made by either side, the decision to hold a referendum and let the population of Greece decide it’s fate – after the deadline has passed – seems to me to be crazy.
The Greek government headed by Alexis Tsipras is essentially saying, “Its not up to us” which was exactly what they were elected for.
From a purely psychological point of view, it is hard to imagine how any of the other participants in these negotiations will want to continue. It is worth remembering that these months have been spent negotiating a temporary funding extension. Talks for a permanent solution will follow, if a solution can be found now.
Or to put it another way, if I were representing any of the Troika, my future negotiating position would be:
“These are my terms. Call a referenda. Put them to the vote of your people. If they vote no, I’ll deal with your successor after you lose the following vote of no confidence. Goodbye.”
Why bother doing anything else if months of hard work are to be wasted? Something tells me that Angela Merkel can find other ways to spend her weekdays than involving herself in no-progress negotiations. The Troika will want to simply cut to the chase and get it over with…
(Update: A few hours after I pressed the publish button it was announced that the Eurozone finance ministers have rejected the request to extend the bailout programme to allow for the vote. I would have done the same thing – and then taken a well earned weekend off…)
What Else Were They Expecting?
I often find myself asking this question when I read the news about the current state of the debt refinancing negotiations.
I try to supress these thoughts because of two things. Firstly, the argument is one that I have seen made by Fox News columnists online and I do not want to agree with them on principle. Secondly, the Greek people are obviously in a terrible situation and I would not want to trade places with them for anything. Any solution that can improve the country’s economic situation must be explored.
Still, time fades the memory and it is worth remembering that the country used some fancy financial moves to hide some of it’s debt to enable it to qualify to join the eurozone.
Then after years of pain and what seems to be a general resistance to the reforms needed to improve their economy, the country has tried to vote itself out of debt.
Even the Finance Minister, Vanis Varoufakis, admitted in a recent blog post that “We need to adjust to a new culture of paying taxes“.
I can remember a number of years ago when suggesting that the Greek’s were evading taxes on an industrial scale was simply unacceptable. Then the realisation landed.
How about this article on the BBC from February 2010 (more than five years ago) or this report from the Daily Mail from June 2011 (four years ago). Media firms are still reporting it now almost as if it is a new issue.
From the perspective of an outsider looking in, it is easy to imagine that the Troika and their representatives do not believe that there have been any meaningful reforms in this area. Wolgang Schaeuble probably asks why German tax payers should be covering the debts that Greek tax payers are not every time he meets his Greek counterpart.
One can also imagine Eurozone Finance Ministers and the ECB asking why they need to prop up ailing Greek banks which seem to not to have a run on them, but a fast walk. The thought that Greece got itself into this mess must crop up frequently.
If this were an individual, deeply in debt, we would expect to see him or her taking steps to get a job (or a second job) and find ways to reduce their outgoings. This would be the personal version of structural reform. After multiple years, with little obvious change, the desire to help would have faded almost totally.
That is a long way of saying that I think that no matter what the result of the referendum on July 5th, the Troika will probably be unwilling to prevent Greece from defaulting and being ejected from the eurozone and unleashing the terrible devaluation of Greek assets and incredible inflation that will hit whatever new currency is issued. If the Greek people think they have it bad now, worse is almost certainly to come…financialguy