Vote Ochi – a Grexit foretold

grexitOn Sunday Greece takes a historic vote on whether to accept an EU bailout. It is important not because of its knock-on impact to the world economy which will easily recover any losses (markets work on sentiment and sentiment is unfaithful and forgetful). It is important because Greece is offering a template to take genuine power from the technocrats and hand it back to the people – appropriately in the country where democracy was invented. The referendum execution is leaving much to be desired but the intention is clear and a worry for politicians across the world who believe voters cannot be trusted to make the right decision in complex matters.

Greece’s referendum is certainly complex. As I write on Saturday morning Australian time – less than 48 hours from when polls open – the exact question voters are deciding on remains obscure while a constitutional challenge to the referendum was not defeated until yesterday. That gives only a day to get millions of ballot papers out to every part of the remote countryside and each of its islands. If that sounds like a fiasco in the making it probably is, nevertheless the need for a speedy resolution is real and the Greeks themselves fully understand what is at stake.

The question is hard, but the answer is simple, yes or no. The discussion that has gone for weeks across Greece is based on these binary opposites. The “yes” vote (confusingly to western ears “né”) is a vote to accept the continued medicine of years of austerity and low growth. It is “the devil you know” and an easy choice to ensure many more years of what Greece has endured since 2009, but within the euro. The yes vote is supported by most of Greece’s centrist political parties, the business community and Greece’s EU partners.

The no vote (transliterated as “ochi” or “oxi”) is more of a leap into the unknown. Prime Minister Alexis Tsipras has hitched his Syriza government to ochi, demanding the forgiveness of a third of Greece’s massive debt and delayed payment on the rest. Syriza came from nowhere in 2014 to win government because they could articulately plot a future that extricated Greece from its problems, foreign debts that even decades of austerity would not clear. One early joke was that Syriza would counterclaim Germany for $250 billion of Second World War reparations to Greece.

But Tsipras’s bargaining chip was simple: give us relief or we stop paying. The ultimate action in this game of bluff is creditors would throw Greece out of the euro zone, which Syriza claims it does not want to happen. Yet this is the path “ochi” takes us on, a fact the people know regardless of how Tsipras frames the question. The prime minister has complicated his gambit by increasing the stakes. Syriza has pledged its future on the people voting no on Sunday. If the ‘né’ vote wins, then Tsipras and his finance minister Yanis Varoufakis will resign and the government will fall.

Nevertheless you can expect weasel room, as three results are possible: a strong yes victory, a weak yes victory and a no victory. Europe is hoping for a strong yes vote, one that keeps Greece just inside its monetary tent but placed on the naughty step for the foreseeable future. Greece would pull back from the brink and a managerialist government would replace Syriza and implement the wishes of Berlin paymasters.

That’s if there is a strong win but what the polls are predicting is a weak yes win. That could leave Greece in status quo, Syriza or some proxy paying creditors till kingdom come in endless last minute negotiations that only whittle away at the edges while grumbles slowly simmer. The path could be clear for a far right government (such as Golden Dawn, which supports the referendum) to blame the weakest in Greek society for their problems and replace austerity with authoritarianism.

A ‘no’ vote is the clearest of outcomes. It will set the country on the Grexit path, certainly from the monetary union, and probably the political union. The technocrats will never admit it but European Monetary Policy is set for political reasons not financial reasons. It loosens some trade barriers but tightens others. Britain stayed out not because of the nationalistic braying of its press but because it saw how London would lose control of its destiny. Each country in the euro zone gives away its central or reserve bank and hands monetary policy to Brussels. The European Central Bank sets its main lever – interest rates – to the needs of its core constituency, Germany.

Though Germany was badly scarred by the GFC, it remains a massive and diverse economy with a well-educated workforce. The price of the euro reflects these factors. The lack of a drachma means not only that Greeks lose out on the cost of transferring currency (tourists love all countries on the euro), and remains expensive to visit, but a Greek exporter has no benefit over German exporters in currency fluctuation.

Leaving the euro may not save Greece from itself but it might save Greece from Europe. Tsipras should be applauded for trusting the electorate to make that decision and not leave it in the hands of faceless technocrats. I wish the country well, and look forward to a good exchange rate on the drachma.


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