Calling the European Union’s bluff, 40-year-old Greek Prime Minister Alexis Tsipras imposed capital controls, shuttering Greece’s banks Monday, after rejecting a bailout deal with EU finance ministers. Tsipras bet that Greece’s financial solvency is worth more to the 19-country Eurozone, than Greece’s expected bankruptcy and exit from the euro. Bound to cause gyrations in global stock markets tomorrow, Tsipras gambled that he had more leverage with EU, hoping to win a game of chicken with Germany Chancellor Angela Merkel and Frankfurt-based European Central Bank’s Mario Draghi. Believing that Greece would get bailed out again at any cost to the EU and ECB, Tsipras didn’t blink, rejecting the EU’s austerity-driven plan for Greece to receive more EU cash. Tsipras wants the EU, primarily Germany, to bear the brunt of Greece’s sovereign debt.
Without releasing some $16 billion of the 2012 $130 billion bailout, Greece will default on its $1.6 billion debt owed to Christine Lagarde’s International Monetary Fund. Promised prosperity joining the euro in 2001, Greece’s economy has headed due south, running ever-larger deficits, mushrooming debt-to-GDP ratios and endless national debt. Without the ability to print or coin money, Greece relied exclusively on the ECB to re-supply its banking system with euros. With panic in the streets and Automated-Teller Machines running out of cash, it’s doubtful, without an EU-approved bailout deal, the ECB would re-supply euros to the Greek banking system. Pushing Greece’s financial system to the brink, Tsipras bet the EU would cave in to Athens’ demands without draconic austerity measures. Tsipras called for a July 5 national referendum on whether or not Greece should stay in the Eurozone.
Calling for a referendum, Tsipras refused to take heat from accepting the EU’s austerity-driven bailout plan. Tsipras refused to scale back civil servant salaries and pensions without getting national approval. When Tsipras was elected prime minister Jan. 26, 2015, he ran on a promise to stand up the EU, primarily Germany and the Frankfurt-based ECB. Tsipras believes the Eurogroup caused Greece’s financial woes since joining the euro in 2001. “It is now more than clear that this decision has no other aim than to blackmail the will of the Greek people and prevent the smooth democratic process of the referendum,” said Tsipras, complaining that the ECB refused to supply Greek banks with emergency liquidity. Like he did when he ran for prime minister, Tsipras cleverly tells the Greek people that the ECB and Eurogroup are to blame for all of Greece’s economic problems.
Driving an unrealistically hard bargain and refusing to acquiesce to the EU, Tsipras thought he’d get whatever he wanted, holding the EU hostage. He tells the Greek people that the EU holds Greece hostage but, in reality, Tsipras played up the possible collapse of the Eurzone if they don’t give in to Greece’s demands. “They will not succeed. These moves will have exact opposite effect. The will make the Greek people more determined in their choice to reject the unacceptable proposals and ultimatums of creditors,” said Tsipras, blaming Greek’s financial woes on the EU and ECB. What Tsipras can’t admit to the Greek people is that its poorly developed manufacturing and export base leaves the economy with structural deficits, both operating expenses and national debt. Greece’s poorly developed economy from Day 1 presented problems for the Eurozone.
New York Times’ Nobel Prize-winning economist Paul Krugman believes Greece would be better off leaving the Eurozone. While Krugman admits it would create temporary havoc in global financial markets, Greece would be better in the long run printing drachmas and exiting the Eurozone. Tsirpras makes no bones about his belief that the Eurozone destroyed Greece’s economy, prompting him to insist the EU bailout Greece in perpetuity. Without agreeing the EU’s terms, the ECB will not release the $7.2 billion of what’s left of the 2013 bailout. French officials expressed reservations about Tsipras’s non-conformity to Eurozone rules. “We don’t know—none of us—the consequences of an exist from the Eurozone, either on the political or economic front. We must do everything so that Greece stays in the Eurozone,” French Prime Minister Manuet Valis told France’s i-Tele TV.
Greece’s economic problems go beyond the latest sovereign debt crisis with the Eurozone and ECB. Pushing the EU and ECB to the brink, Tsipras rolled the dice and still believes that he’ll get everything he wants from the EU. Insisting Greece must stay in the Eurozone, finance ministers don’t want to rock the boat but they also don’t want Greece to hold the EU hostage, refusing to make the necessary changes to repay sovereign debt and avoid a future crisis. If the EU takes Tsipras offer, with or without expected changes, EU taxpayers will forever bail Greece out of its economic woes. While a majority of Greeks wish to remain in the Eurozone, the Tsipras government doesn’t want to institute necessary reforms to work it out. Greece’s longstanding budget and sovereign debt problems won’t go away anytime soon, making sure that any bailout won’t fix the problem.
