What's happening in Greece right now

[Paul Rigby]

THE PRICE OF TSIPRAS

BY Alexander Mercouris
10 July 2015

https://www.facebook.com/alexander.merco...6080977304

Prior to the referendum there were claims from some people that Tsipras had called it in the expectation that there would be a Yes vote so that he could then sign the bailout plan which he had rejected.

This made no sense to me since it was clear to me that if Tsipras had lost the referendum he would have been finished politically.

The truth is actually even more bizarre. It was first disclosed by Ambrose Evans-Pritchard in the Daily Telegraph in a piece that seemed to me so weird that I couldn't quite believe its truth (I attach it below). In the hours after it appeared I was assured by several people it wasn't true.

I am afraid it turns out that it was true. I believe that the source of the story was either James Galbraith - the US economist who is advising Tsipras - or Varoufakis, and probably both of them.

It seems that Tsipras did indeed call the referendum in the belief that he would lose and the Yes vote would win. His plan was not to use the Yes vote as cover to sign the bailout plan as some had suggested. It was to use the Yes vote to resign and leave active politics.

A "national unity government" headed by Antonis Samaras would then have been formed, which would have signed the bailout plan. Syriza - minus Tsipras - would have gone into opposition. New elections would have been called, which Syriza would have lost. It would then have finally been in a position to campaign against the bailout and (possibly) demand a Grexit when the latest bailout failed.

This by the way explains the strange meeting between Samaras and the Greek President, which led to calls for a "national unity government", which had so alarmed me.

As with most overcomplicated political strategies this one ended in abject failure when the Greek people, instead of voting Yes, backed Tsipras (as they thought) by a landslide and voted No.

It is perhaps understandable that Tsipras and his political advisers (including in this connection Varoufakis) got this so completely wrong.

Before the referendum opinion polls were showing overwhelming support for retaining the euro and majority backing for accepting the bailout.

Here I am going to say something about Greek opinion polls. Though they are normally reliable I have been hearing from several people of increasing doubts that they are still so. Paul Krugman - who I believe is far more heavily involved behind the scenes than he lets on - has also publicly hinted as much on his blog and I suspect he has been told privately the same thing.

The Greek media that commissions the opinion polls is overwhelmingly oligarchic controlled and pro-EU. I am afraid it is beginning to look as if the opinion polls it has been publishing during this crisis reflects this bias - a sign by the way of how polarised opinion in Greece has become.

Anyway the fact that the actual results of the referendum proved the opinion polls so utterly wrong should act as a warning against putting any excessive trust in them.

A few months ago when Syriza won the election there is no doubt Greeks did overwhelmingly want to keep the euro. Though many still do, everything I am hearing points to a big swing away from that position, which the opinion polls are not reflecting.

Anyway, returning to Tsipras, the referendum result did not deliver him from what he has clearly come to see as an impossible situation. On the contrary, since the Greek people took him at his word, it has left him high-and-dry.

What I am hearing about Tsipras is that he is a personally charming man with good intentions. However like many charming people he relies too much on his charm, making him intellectually lazy and causing him to behave in ways that are frankly devious and manipulative.

The result is that he has brought both himself and Greece to a point of genuinely existential crisis.

As many have pointed out Tsipras got himself elected on a totally false promise that he could persuade the Europeans to ease up on austerity whilst keeping Greece in the euro. It doesn't seem to have occurred to him that if such a thing was possible previous Greek governments would have done it.

In the event, when it became clear that it was not possible he had a clear choice: either capitulate or go for a Grexit. Either would have meant breaking an election promise but he would not have been the first leader elected to have done so.

Since his promise to end austerity and bring growth back to the economy was what caused the Greek people to vote for him in the first place, political and economic logic should have pointed him towards a Grexit.

Had he at that point engaged in conventional diplomacy instead of grandstanding he would have quickly discovered that in seeking an orderly Grexit he had in Wolfgang Schauble a powerful ally capable of trumping any obstruction from elsewhere in Europe and from the European Commission and the ECB.

It is possible to see how the outlines of an agreement for an orderly Grexit might have been reached had a more conventional and clearheaded approach been taken.

The Russians could have helped with the technical issues of creating a new currency, whose problems Varoufakis is exaggerating (see below) - one should not mistake an alibi for a failure to do something as the truth.

Schauble could have put together a coalition - possibly including the Chinese and the Russians - to provide Greece with the necessary bridging finance to support the new currency.

Schauble could also have made sure that the ECB continued to provide liquidity support to the Greek banks until the new currency was up and running and the job could be taken over by the Bank of Greece.

To those who doubt whether Schauble would have done any of these things the short answer is that he has been pushing for months to do all these things.

Regardless there was no sense in demonising the most powerful Finance Minister in Europe, turning him from a potential ally into an enemy, when there was no Plan B.

As for the US, it could have been appeased with pledges of Greece's continued loyalty to the EU and NATO, whilst the international financial community could have been given promises that Greece would continue to cooperate with the IMF to carry out "reforms" so as to be able to resume its debt payments later. Some of these reforms are actually needed and who knows IMF help might even have helped with them.

More probably, with a Grexit the whole "reform" agenda - and the debt repayments - would have been quietly shelved.

A strong and self confident politician such as Greece has had in the past (eg. Kapodistrias, Trikoupis or Venizelos) could have done it. Unfortunately Tsipras is simply not cut from that cloth.

The result is that we now have the worst of all worlds with Greece facing either an indefinite prolongation of austerity or a chaotic Grexit for which it has not been prepared. Of the two I still definitely prefer the latter despite the very real horror it will cause since at least it offers some hope of an eventual end. Tsipras's amateurism and incompetence however means that either way the decision is no longer in Greece's hands.

Meanwhile there is a serious risk of a political collapse. Most Greeks have not yet fully understood that their government is now signing up to an even tougher austerity package than they one they rejected in the referendum last Sunday. When they do the legitimacy crisis some talk about will hit home hard.

Tsipras himself is toast and I cannot see his Syriza party holding together for much longer. The problem is that 5 years of austerity have hollowed out the political system. There is no obvious alternative other than a return to the discredited old oligarch parties.

Many young people in particular will feel betrayed. Many will emigrate but in a country as politically divided as Greece, further alienation of the young is potentially dangerous.

It is easy to see how many young people could become attracted to parties like Golden Dawn or the KKE or (much more probably) whatever new left wing party splinters from Syriza.

However given Greece's history there is also a very real risk of a return of political violence with some young people turning to terrorism. It is little more than a decade since political terrorism ended in Greece, when it already had the sympathy of many young people. Some of them are now certainly angry enough to return to that as I have experienced from occasional bruising encounters myself.

It is also unfortunately true that Tsipras's incompetence has severely weakened Europe's emerging anti-austerity front. There must be serious questions now whether Podemos will win in Spain or whether Marine Le Pen (whom Syriza gratuitously insulted) will win in France given the disaster that an anti-austerity party has led to in Greece.

I was never a supporter Tsipras or of Syriza and I have never hidden my doubts and concerns about them since before the election that brought them to power. With a heavy heart I have to say that they have all come true - and with a vengeance.

I am truly sorry because I never wished Tsipras or Syriza ill. However it is the people of Greece - and of Europe - that are going to pay the price.

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From the Daily Telegraph:

Like a tragedy from Euripides, the long struggle between Greece and Europe's creditor powers is reaching a cataclysmic end that nobody planned, nobody seems able to escape, and that threatens to shatter the greater European order in the process.

Greek premier Alexis Tsipras never expected to win Sunday's referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation - and intention - of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 "ultimatum" and suffer the opprobrium.

This ultimatum came as a shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors' cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke.

Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc.

They insisted on fiscal tightening equal to 2pc of GDP in an economy reeling from six years of depression and devastating hysteresis. They offered no debt relief. The Europeans intervened behind the scenes to suppress a report by the International Monetary Fund validating Greece's claim that its debt is "unsustainable". The IMF concluded that the country not only needs a 30pc haircut to restore viability, but also €52bn of fresh money to claw its way out of crisis.

They rejected Greek plans to work with the OECD on market reforms, and with the International Labour Organisation on collective bargaining laws. They stuck rigidly to their script, refusing to recognise in any way that their own Dickensian prescriptions have been discredited by economists from across the world.

"They just didn't want us to sign. They had already decided to push us out," said the now-departed finance minister Yanis Varoufakis.

So Syriza called the referendum. To their consternation, they won, igniting the great Greek revolt of 2015, the moment when the people finally issued a primal scream, daubed their war paint, and formed the hoplite phalanx.

Mr Tsipras is now trapped by his success. "The referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise," said Costas Lapavitsas, a Syriza MP.

"Tsipras doesn't want to take the path of Grexit, but I think he realizes that this is now what lies straight ahead of him," he said.

What should have been a celebration on Sunday night turned into a wake. Mr Tsipras was depressed, dissecting all the errors that Syriza has made since taking power in January, talking into the early hours.

The prime minister was reportedly told that the time had come to choose, either he should seize on the momentum of the 61pc landslide vote, and take the fight to the Eurogroup, or yield to the creditor demands - and give up the volatile Mr Varoufakis in the process as a token of good faith.

"They just didn't want us to sign. They had already decided to push us out"

Everybody knew what a fight would mean. The inner cabinet had discussed the details a week earlier at a tense meeting after the European Central Bank refused to increase liquidity (ELA) to the Greek banking system, forcing Syriza to impose capital controls.

It was a triple plan. They would "requisition" the Bank of Greece and sack the governor under emergency national laws. The estimated €17bn of reserves still stashed away in various branches of the central bank would be seized.

They would issue parallel liquidity and California-style IOUs denominated in euros to keep the banking system afloat, backed by an appeal to the European Court of Justice to throw the other side off balance, all the while asserting Greece's full legal rights as a member of the eurozone. If the creditors forced Grexit, they - not Greece - would be acting illegally, with implications for tort contracts in London, New York and even Frankfurt.

They would impose a haircut on €27bn of Greek bonds held by the ECB, and deemed "odious debt" by some since the original purchases were undertaken by the ECB to save French and German banks, forestalling a market debt restructuring that would otherwise have happened.

"They were trying to strangle us into submission, and this is how we would retaliate," said one cabinet minister. Mr Tsipras rejected the plan. It was too dangerous. But a week later, that is exactly what he may have to do, unless he prefers to accept a forced return to the drachma.
Syriza has been in utter disarray for 36 hours. On Tuesday, the Greek side turned up for a make-or-break summit in Brussels with no plans at all, even though Germany and its allies warned them at the outset that this is their last chance to avert ejection.

The new finance minister, Euclid Tsakalotos, vaguely offered to come up with something by Wednesday, almost certainly a rejigged version of plans that the creditors have already rejected.

Events are now spinning out of control. The banks remain shut. The ECB has maintained its liquidity freeze, and through its inaction is asphyxiating the banking system.

Factories are shutting down across the country as stocks of raw materials run out and containers full of vitally-needed imports clog up Greek ports. Companies cannot pay their suppliers because external transfers are blocked. Private scrip currencies are starting to appear as firms retreat to semi-barter outside the banking system.

"We have to put our little egos, in my case a very large ego, away, and deal with situation we face"

Yet if Greece is in turmoil, so is Europe. The entire leadership of the eurozone warned before the referendum that a "No" vote would lead to ejection from the euro, never supposing that they might have to face exactly this.

Jean-Claude Juncker, the European Commission's chief, had the wit to make light of his retreat. "We have to put our little egos, in my case a very large ego, away, and deal with situation we face," he said.

France's prime minister, Manuel Valls said Grexit and the rupture of monetary union must be prevented as the highest strategic imperative.

"We cannot let Greece leave the eurozone. Nobody can say today what the political consequences would be, what would be the reaction of the Greek people," he said.

French leaders are working in concert with the White House. Washington is bringing its immense diplomatic power to bear, calling openly on the EU to put "Greece on a path toward debt sustainability" and sort out the festering problem once and for all.

The Franco-American push is backed by Italy's Matteo Renzi, who said the eurozone has to go back to the drawing board and rethink its whole austerity doctrine after the democratic revolt in Greece. He too now backs debt relief.