Voting [61% to 39%] down a new austerity-driven Eurozone bailout plan, Greeks overwhelmingly backed the leftist government of 40-year-old Alexis Tsipras and his 54-year-old Finance Minister Yanis Varoufakis, both urging a “no” vote in Sunday’s national referendum. Throwing currency exchanges and foreign stock markets into chaos, Tsipras and Varoukakis believe the Eurogroup, led by chief finance minister Joroen Dijsselbloem, will capitulate, giving Greece an additional 60 billion euros to retire half of its sovereign debt in exchange for staying on the euro and accepting some the Eurozone’s cuts to Greece’s civil salaries and pension payments. Tsipras sold the Greek public on the idea that the Eurozone, led by German Chancellor Angela Merkel, was blackmailing Greece into accepting a new bailout that required Greece to stop its deficit spending and live within its means.
Greece’s aging pensioners forget the days when their pensions routinely went up in smoke to rampant inflation and all-too-often government devaluations of the drachma, the Greek currency. Whether the Eurozone or common currency worked for Greece or not, it provided currency stability. Faced now dealing with Greece’s 1.6 billion euro default to the International Monetary Fund, Tsipras hoped to put more pressure on European Union and Frankfurt-based European Central Bank to bail out Greece for the third time. Today’s resounding “no” vote to a national referendum rejected the Eurogroup’s bailout provisions, especially new austerity measures. With a “no” vote, Tsipras told Greeks that he’d have more leverage to get Greece a better deal with creditors, especially resisting new austerity measures. Tsipras hailed the vote as a victory of Greek “freedom.”
Tsipras idea about “freedom” casts the EU, European Central Bank and the Eurozone as evil slave masters, keeping Greece’s economy in permanent recession. Blaming primarily Germany, Greece’s biggest creditor, Tsipras was able to rally lingering resentment from the Nazi occupation in WWII. Blaming Germany for Greece’s economic woes resonated with voters, looking for a scapegoat over accepting responsibility for the country’s economic mismanagement. Once Greece joined the Eurozone Jan. 1, 2001, there were high hopes for Greece to benefit from Europe’s prosperity. It didn’t take long for Greece to run massive deficits, run out of cash, and eventually beg the Eurozone for cash bailouts. After getting 240 billion euros in 2010 and 2012 bailouts, the EU, Eurozone and ECB hoped Greece could live within its means and manage its economy.
Setting up a confrontation with Merkel, Dijsselbloem and Mario Draghi’s ECB, Greece’s creditors must ask whether or not continued bailouts will result in anything other than more of the same. Without adopting strict austerity measures, it’s doubtful that throwing more good money after bad in Greece would do anything other than buy the Eurozone some costly time. If the Dijsselbloem’s Eurogroup hands over more cash to Greece, it would pave the way for a future Eurozone economic calamity. Whatever pain exiting the Eurozone would cause, handing Greece another 60 billion euros would destroy the Eurozone’s credibility. Already struggling with a stubborn recession, the common currency would lose credibility against reputable foreign currencies, handing Greece more bailout cash. Greece’s “no” voter made it more difficult for the Eurozone to justify a third bailout.
Tsipras and Varoufakis gambled that the Eurozone would rather hand Greece more cash than deal with the uncertain repercussions of watching one of its 19 members bail out. No matter how Tsipras sells the idea of a Greek Eurozone exit, the real loser is Greece who must forever contend with an unstable currency built on only wishes for eventual Greek prosperity. While its always possible Tsipras will turn around the Greek economy, it’s far more likely Greece faces a tough road ahead. If Greece returns to the drachma, the government must convince foreign currency exchanges to give it a fair value. With Greek exports weak for the foreseeable future, it’s doubtful that the currency would mirror anything other than a weak Greek economy. Tsipras can blame the EU for Greece’s failures but the real culprit is Athens. Greece has no one to blame for its economic woes other than its leftist government.
Voting “no” in a national referendum, it’s going to be difficult for Tsipras and Varoufakis to go back to the EU, Eurozone or ECB and ask for new bailout cash without making painful changes to Greece’s deficit spending. Tsipras and Varoufakis know that there’s no free lunch in the Eurozone. After deciding to hold a national refererndum June 28 to determine Greece’s fate in the Eurozone, Tsipras and Varoufakis want a deal for more cash. Expecting the EU, Eurozone or ECP to hand Greece more cash defies all common sense, but, more importantly, weakens the common currency. If the Eurozone rewards Greece for defaulting on its debt, the euro, now holding a rough value above the U.S. dollar, will plummet in value. Handing over Greece’s leftist Syriza government billions more in bailouts would set a dangerous precedent for the Eurozone, paving the way for blackmail by cash-strapped states.
