So... why the ευφορία? (Funny that our word "Euphoria," whose etymology is of Greek derivation I believe, begins with "EU.") Austerity is inevitable, in the Eurozone or out of it.
You'll have heard by now that Greece has voted "No" on the following referendum question:
Should the agreement plan submitted by the European Commission, the European Central Bank and the International Monetary Fund to the Eurogroup of 25 June, 2015, and comprised of two parts which make up their joint proposal, be accepted? The first document is titled 'reforms for the completion of the current programme and beyond' and the second 'Preliminary debt sustainability analysis'.
Voters must check one of two boxes - 'not approved/no' or, below it, 'approved/yes'
This question points Greek voters to
two documents, which are linked to a bailout program proposal that has already expired, and
it's not clear how many Greek voters without Internet access read them, though I haven't yet seen any polls showing how many Greek voters read the documents.
It is mildly alarming that a key phrase in one of the documents indicated in the Greek version that there was a sustainability issue, where the English version from which it was translated said that there was NO sustainability issue, with Greek debt, under one of the proposed plans. Here is the pertinent passage from the document in question:
4.
The Role of Financing Needs
Focusing on the debt-to-GDP level does not allow to capture the structure of debt and per se is not accounting entirely for the measures taken for the European financial support to make Greek debt sustainable. This aspect can better be assessed
by the gross financing needs of a country, which captures its payment structure over time. Lower gross financing needs imply better market access and less financial stability risk.
This gross financing need metric points to no sustainability issues under the first two scenarios. The gross financing needs remain well below 15% threshold, a threshold mentioned in IMF guidance for this criterion. Under this scenario c), significant reprofiling of the stock of debt and concessional lending terms would improve sustainability. Reprofiling of payment flows does not imply nominal haircut or budgetary costs for creditors. This would also entail further NPV gains for Greece, and strengthen the sustainability of the Greek public debt in the long run.
[Emphasis added.] The "no" in the bolded passage above was deleted in the Greek translation, indicating that the first two debt-lessening proposals DID have sustainability problems.
I don't know quite what to think about that rather tiny, but kind of crucial, translation error. On the one hand, "no" is just one little, tiny word; on the other hand, in a referendum such as this, it's like changing "do you have confidence in our government?" to "do you have no confidence in our government?" But drafting errors do happen.
At least one poll taken Friday was wildly at odds with the outcome. That poll showed 10.9% undecided, and 41.5% to vote "yes" and 40.2% to vote "no." In the end, though, in a surprising upset, the results of the voting were given as 61% voting "no," and 39% voting "yes."
With Syriza minister Yanis Varoufakis plumping for a "no" vote and promising to resign if the referendum returned a "yes" vote, and officials like German president of the European Parliament Martin Schulz and Luxembourg native and European Commission chief Jean-Claude Juncker issuing warnings to vote for the "yes" side, Greek airwaves have been inundated by competing views of a "no" vote as being a vote of confidence in Syriza, or of a "yes" vote as being a vote to stay in the Eurozone.
Given that most Greeks want to stay in the Eurozone, although it is plain that warnings of a Grexit didn't suffice to tip the balance, the "no" voting public seems to have seen the referendum not as a vote against the Eurozone, but as a vote against austerity.
But if Greece wants to keep paying its pensioners, and might need to run deficits sometimes to pay them (which it does, since over 20% of Greeks are over 65 years of age, compared to 12.8% of Americans; and which it will, since earlier thoughts of a primary [that is, not taking debt payments into account] budget surplus have changed back to realities of a primary budget deficit again, even BEFORE debt payments are figured in), what are we celebrating?
To run a deficit, you'll need to issue bonds (i.e., borrow in order to deficit-spend and pay for those pensions), won't you? Otherwise, you have to pay for things by printing money (and people--conservative though some of those voices are, they would hardly turn down the chance to invest in Drachmae on the forex if there were money to be made--aren't exactly sanguine about the value of the New Drachma that might come in the first place), which means inflation, which kills the value of the very pensions you're paying them.
And since in order to do that bond issuance without paying stratospheric interest rates on your bonds, you'll need to balance the budget, which means redoubling tax reform (which, unfair as this is, will make enemies out of many voters), and making spending roughly balance tax collection--
--and since, crucially, high interest rates ADD to imbalances in that very budget--
therefore, this means you'll have austerity anyway, in the end, doesn't it? Otherwise, how will you deal with the international bond markets, who will demand the highest double-digit interest rates the developed world sees?
So why, again, are we celebrating something that will end in austerity anyway?
To give credit where it's due, it is NOT a foregone conclusion that Greece will fail to balance its budget. Syriza has recently proposed a regimen of tax reform and spending cuts which will, I am happy to say, hit high earners but will attempt to shield pensioners. I like the look of the budget.
However, it presupposes running the primary budget surpluses which, as mentioned, they began looking as if they'd make, but which turned to primary budget deficits in recent times. It is not right to load it as doomed to fail before it's enacted, and if it's properly enacted as written, it looks good. But it is also not right to assume that it's destined to succeed (especially in the highly contentious battlegrounds of tax evasion, and of taxing the rich more than pensioners, though I am all in favor of these things).
If Greece DOES end up in a Grexit, the New Drachma will face absolutely ruinous inflation (which is, ironically, worst for those on fixed incomes, such as, er, pensioners...);
it will have to pay absolutely HUGE bond yields in order to raise any money, any time it may want to run deficits, as developed countries must at times, because investors will see the default and will not choose risky Greek bonds otherwise; and
banks and the economy will continue to be in danger. Bank runs occurred beginning last December, upon Syriza's election and the threat of default, because people wanted to withdraw their strong Euros while they could still get them; with a weak Drachma, they'll race to withdraw them before devaluation, before they buy even LESS in the way of food or sponges or cleanser or gasoline. If banks are at risk, their lending is at risk, and the money they circulate is at risk. Greece seemed to be about to default, so people began withdrawing billions of euros from them, so Greece had to restrict the amount people could withdraw from the banks, so... if you run a restaurant on Greece, is anyone eating out? No. If you are a creditor expecting a loan to be repaid by that restaurant, will you get it in time? No. And so that creditor's payments to HIS or HER creditors freezes; and so on.
What will ALSO happen in such a situation is that Russia, who have recently gladly met with Greece, and who have recently conducted joint Mediterranean naval maneuvers with China, and who have for centuries been concerned about getting their ships naval ports outside Russia and exits for their Black Sea fleet (see under "Retaking the Crimea"), will ply Greece with raw materials and food and other economic support, and with improvements to their ports, and in exchange for helping the newly EU-ejected Greece, will have a new ally in the eastern Mediterranean. This will be hard for Russia, but something like a lend-lease program is a sacrifice they will gladly make, now that their ally Syria has been in crisis and uncertain for so long.
Move beyond the feel-good anti-bankster sloganeering: again, I can certainly agree on bankers being avaricious (though how does sticking Italian or Spanish taxpayers, who are the ones on the hook for dozens of billions of those Euros of Greek debt, and who include MIDDLE-CLASS taxpayers, stick it only to banksters?); and again, Syriza's proposals hold some weight, and not just with me; but whether you blame Those Bad People Who Loaned Too Much Money, or Those Bad People Who Borrowed Too Much Money, aren't we agreed that too much money was borrowed, at a face value of 170+% of Greek GDP?
(Not all are: one group of economists, who favor what's called an "IPSAS" method of calculating debt obligations, believe that a 174% or 177% figure is inaccurate, because it relies only on face-value loans now, and doesn't take into account things like debt restructurings, by which interest rates are lowered over time. However, this seems disingenuous--if Greek borrowing was sustainable, then why on earth did they miss their payments just now, and what is the issue with continuing to meet those payments? It's all well and good to say "yes, but if only the banksters had restructured their loans, it'd have been fine!" and sure, maybe they should have; but if they didn't, and if it depended on "only if the banksters decide to be nice," then doesn't that lead, again, to the conclusion that too much debt was taken on? Again: this doesn't mean "Those Bad Borrowers" any more than it means "Those Bad Lenders," but it simply means all that debt was unsustainable. Although why "Those Bad Borrowers" means "the Greek People," I don't know--it WASN'T "the Greek People" who used this borrowing to fudge their books and their deficit numbers, it was a Greek administration, and not even Syriza's administration.)
Especially if it ends with a default and a Grexit, and a New Drachma, that will lead to inflation that will beggar the very pensioners they seek to help, and sky-high bond yields that will lead to the same austerity that they sought to flee, unless the Russians step in as Sugar Daddy Bears.
Since all that ends either in a Russian alliance and Russian bailout, or in the same austerity that the Greeks wanted to avoid, what are we celebrating?