Huge Win for Greece, Varoufakis Sacked, Troika Unlikely to be Placated

Greek Prime Minister Alexis Tsipras' first move following the landslide anti-austerity "Oxi" vote in yesterday's referendum was to toss his finance minister and chief troika critic, Yanis Varoufakis, on the pyre. Varoufakis announced his resignation today with the blog post, "Minister No More":

Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. 

I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum. 

And I shall wear the creditors’ loathing with pride. 

We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government. 

The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.

There is no indication at this point that the eurozone power brokers are feeling any change of heart after a super-majority of Greeks rejected their last proposal. Jack Ewing reports from the European Central Bank headquarters in Frankfurt that there is a wait-and-see attitude on Greece's access to emergency liquidity assistance (ELA):

The no vote by Greeks on Sunday makes it even more difficult for the European Central Bank to continue propping up Greece’s commercial banks, whose solvency is closely linked to that of the country’s government. 

But the central bank has so far avoided taking action that could force Greece out of the eurozone, a possible outcome if the banks fail. Without a banking system serving as a conduit for euros and a platform for transactions, Greece might have little choice but to begin printing its own currency.

“Pressure has increased further for the E.C.B. to revoke Greek banks’ access to central bank liquidity,” said Mujtaba Rahman, the Europe director for the Eurasia Group, a political risk consulting firm. “Still, the E.C.B. is very likely to keep its liquidity lifeline open for the time being.”

While the central bank probably will not cut off credit to the Greek banks on Monday, it is also unlikely to increase the amount available to them from its current level of 89 billion euros, or about $99 billion. The 25 members of the Governing Council will not want to increase the central bank’s exposure to Greece until there is tangible progress toward an accord with eurozone creditors and with the International Monetary Fund.

Without an increase in credit, Greek banks are in imminent danger of running out of cash to dispense to depositors. They are unlikely to open tomorrow, despite promises to the contrary by Athens.

“The Greek no puts the European Central Bank in a most difficult position,” Holger Schmieding, chief economist at Berenberg, a German bank, said in a note to clients. “We look for the E.C.B. to tread very cautiously, though, perhaps even seeing to it that small amounts of euro cash could still be withdrawn from Greek cash machines for a while until the political outlook becomes clearer.”

In other words, the historic "Oxi" vote by the Greek people means nothing to ECB apparatchiks. This attitude is also prevalent in Brussels where James Kanter quotes European Commission VP Valdis Dombrovskis saying "Oxi" will make things worse for Greece:

“The commission is ready to continue its work with Greece,” Mr. Dombrovskis told a daily news conference in Brussels. “But to be clear, the commission cannot negotiate a new program without a mandate from the Eurogroup.” 

Mr. Dombrovskis was referring to the name of the group of finance ministers from countries that use the euro.

The hurdles to a formal resumption of talks, including any official decision by the Eurogroup to begin negotiations on Greece’s third international bailout in five years, were high, Mr. Dombrovskis warned.

“The ‘no’ result unfortunately widens the gap between Greece and other eurozone countries,” he said. 

“There is no easy way out of this crisis,” he added. “Too much time and too many opportunities have been lost.”

Once again, to the eurozone power elite the "Oxi" vote means nothing; in fact, worse than nothing. The democratic referendum, we are told, has raised the costs of the any new bailout deal by tens of billions of euros.

What the "Oxi" vote reveals is the weakness of the "big lie." Greek voters saw clearly what was happening: Banks were shut because the European Central Bank capped ELA when Tsipras called the referendum. The ECB did this in an attempt to shock Greeks and stampede them in the direction of a Yes vote. It failed stupendously. Now, as Krugman outlines in his column, "Ending Greece’s Bleeding," for the ECB to increase ELA would be to acknowledge that the cap on lending was a political intervention meant to topple Greece's Syriza-led government:

The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency. 

Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.

But the big lie must be protected. That is all neoliberalism is at this point. Krugman is not sanguine about the possibility of a new debt deal emerging quickly; and without this, Krugman sees no better alternative for Greece than abandoning the euro:

In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?

I have no idea — and in any case there is now a strong argument that Greek exit from the euro is the best of bad options.

Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits? 

Would Greek exit from the euro work as well as Iceland’s highly successful devaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.

And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.

Basically we are back to where we were when negotiations first started between Greece and the troika. Absent significant debt write-offs there appears to be no rational alternative to a Grexit.

But a Grexit doesn't appear to be Tsipras' goal; axing Varoufakis is proof of that (though the finance minister didn't seem too broken up about it; at the end of the day, a scholar prefers the quiet of the cloister). Why the troika doesn't grab at the offer Tsipras made last Wednesday after Greece failed to make its repayment to the IMF and be done with the crisis can only be explained by a perception in Brussels, Berlin, and other European capitals (not to mention Washington D.C.) that protecting the big lie of neoliberalism -- at all costs -- is paramount, and this demands that a leftist party like Syriza must go.

"Oxi" is Winning in Greece

Suzanne Daley in "Greeks Appear to Lean Toward Rejection of Bailout Deal" includes some very telling quotes from interviews with voters at Greek polling stations:

Ippolitos Papantoniou, 55, a businessman, said Greece was being made an example in case other Southern European nations tried to challenge the dictates of the eurozone. 

“We are a tiny part of the European Union’s G.D.P.,” Mr. Papantoniou said. “They don’t want to allow a government of the left.”

Athanasis Chryssochoidis, 76, a pensioner and a friend of Mr. Papantoniou’s, agreed. “Tsipras and all of them want to negotiate,” Mr. Chryssochoidis said. “But as soon as they said yes to something, the Europeans put up more demands. The issue is that Syriza is a left party and they don’t want such mischief.” 

“We’ve reached our limit,” Mr. Chryssochoidis said. “This is not a society of beggars.”

People can see what is happening. Exit polls show a strong No. Plus, No is coming in at 60% with 10% counted.

The courage of the Greek people must be celebrated if this holds up. To display such courage is the essence of our humanity, the whole point of being here now, always.

Why a Yes Vote for Austerity in Greece's Sunday Referendum Will Necessitate Concessions from the Troika

Today in the United States will be the last day of the work week for many people. A lot of those who do not get tomorrow off because of the 4th of July holiday on Saturday will take Friday off anyway. Since tomorrow I'm posting on Hippies vs. Punks, and either Saturday or Sunday (or possibly both) my plan is to take care of some old business and finish "The Colt 45 Chronicle" posts, I want to get my two cents in before Sunday's referendum in Greece on austerity.

Yesterday I think Tsipras erred when he went on television and said he was willing to accept with some tweaks the last offer on the table from the troika. German Chancellor Angela Merkel promptly replied that there would be no more negotiations until after the Sunday referendum.

Two things on this: 1) Tsipras likely got some bad feedback from U.S. Treasury officials that eurozone leaders were open to a compromise, and 2) Germany obviously feels that a Yes vote for austerity is the most likely outcome.

Tsipras' public acceptance of the last offer from the troika at the same time Syriza is rallying Greeks to vote No is extremely confusing to say the least. Why vote No when the prime minister is saying in substance he would, with some marginal modifications, accept such an agreement?

But this morning I think Varoufakis went some distance towards correcting the Tsipras blunder by saying if the vote on Sunday is a Yes he will resign as finance minister.

Nonetheless if I had to choose, much as it nauseates me to acknowledge it, I would have to say that a Yes vote at this point seems more likely.

Neil Irwin published a piece yesterday arguing that "Greece Wanted to Reframe Europe’s Austerity Debate. It Failed." This is by and large the same point that Yves Smith of Naked Capitalism has been making since Syriza came out on top in January's parliamentary elections, and it is one she reiterates in a post yesterday, "Tsipras Accepts Most Creditor Terms as Merkel Insists on Referendum."

I think the first round of media that Varoufakis did in the winter following Syriza's win he made some headway. He was very cogent and convincing about the impossibility of Greece paying off its lenders; that austerity actually shrinks the economy, necessitating further loans from the troika; that the primary surplus achieved by the preceding government led by New Democracy was a fiction based on the shrinking of overall economic activity.

But once Syriza sat down with the troika in Brussels this message gradually over the months became lost, disappearing entirely when Varoufakis agreed to a primary budget surplus. As scholar Costas Panayotakis said in an interview on Democracy Now! on Tuesday, Syriza can't even be considered a Keynesian party. What was the norm in the 20th century in the post-War II period is completely verboten in Europe today.

All this augurs ill for a No vote come Sunday. Popular votes are not normally platforms for displays of personal courage and heroism, particularly with all the tacking back and forth leadership has been engaged in.

So we need to consider what a Yes vote entails. Varoufakis says he will resign. Tsipras says he will not implement austerity. And even if Tsipras decides to eat those words he would face a sizable rebellion from his party in parliament. This means new elections must be held, which means the financial crisis in Greece worsens. As Smith points out in her post from yesterday,

Consider how this might play out. An op-ed in Reuters by Hugo Dixon titled, Tsipras looks like he is crumbling, describes what happens if the referendum delivers an anti-Syriza “yes” vote:

Still, it would be wrong to think that a “Yes” vote would lead to a quick or straightforward solution, because of the complexities of Greek politics.

One might think that opposition parties and SYRIZA could form a national salvation government. Something similar happened in 2011. But creditors would have little confidence that any government relying on SYRIZA would do what it promised. As a result, it would struggle to reach a new deal with its lenders and get the banks open.

Knowing all this, the Greek political parties might conclude that it would be best to clear the air by calling new elections. But there’s no guarantee that the opposition would win such a vote because it is fragmented. It has not yet managed to rally behind a single figure and a common program.

Even if the opposition won such an election, it would not be ready to start talks with its creditors until August. By then, the banks would have long run out of cash unless the ECB supplied more emergency liquidity, and the economy would be in a terrible state.

Benoit Coeure, the ECB executive director responsible for negotiations with Athens, said this week that if Greeks vote “Yes” in the referendum, he had “no doubt” euro zone authorities would find ways to meet commitments towards the country. The snag is that it may struggle to find a legal route to provide more liquidity until a new agreement is reached.

So even if voters cry “uncle,” it will take time to sort out a new coalition or worse, have an election, and in the meantime, conditions in Greece will become more desperate. Bank holidays are a form of strangulation. As Nathan Tankus wrote last month:

Two years ago in Cyprus, an emergency bank holiday was declared and capital controls installed. The bank holiday only lasted for twelve days yet supply chains started drying up instantly. An ex-Cyprus central bank governor told the Guardian:

Supplies of food are being exhausted and there are cases of raw materials like iron and timber being held up in customs because importers don’t have the cash to pay for them … No one expected, myself included, that the EU, ECB md IMF, would behave like this. Cyprus has been treated very badly … Where is the solidarity principle that is supposed to underline Europe?

Even 6 months later after the banks had reopened and capital controls were loosened, businesses were still having trouble getting basic supplies.

And remember, Cyprus was in vastly better shape than Greece is now.

The goal of the neoliberal austerian power brokers has always been to crush Syriza. The question for Merkel now becomes, assuming a Yes to austerity on Sunday, is it better to have a gelded Syriza remain in power and carry out austerity by acceding to Tsipras' tweaks on pensions or is it better to throw Syriza out of power and topple the government?

Merkel no doubt would opt for the former. It is better to capture your opponent than have him run away to fight another day. But it might be beyond Merkel's ability, post-Yes, to grant any concessions to Tsipras. One thing seems clear. Assuming a Yes vote, and absent concessions from the troika, there will be new elections.