Only the No Can Save the Euro – by James K. Galbraith

03/07/2015 by

For the original source, at Prospect Magazine, click here
Greece is heading toward a referendum on Sunday on which the future of the country and its elected government will depend, and with the fate of the euro and the European Union also in the balance. At present writing, Greece has missed a payment to the IMF, negotiations have broken off, and the great and good are writing off the Greek government and calling for a “Yes” vote, accepting the creditors’ terms for “reform,” in order to “save the euro.” In all of these judgments, they are, not for the first time, mistaken.

To understand the bitter fight, it helps first to realize that the leaders of today’s Europe are shallow, cloistered people, preoccupied with their local politics and unequipped, morally or intellectually, to cope with a continental problem. This is true of Angela Merkel in Germany, of François Hollande in France, and it is true also of Christine Lagarde at the IMF. In particular North Europe’s leaders have not felt the crisis and do not know the economics, and in both respects they are the direct opposite of the Greeks.

For the North Europeans, the professionals at the “institutions” set the terms, and there is only one possible outcome: to conform. The allowed negotiation was of one type only: more concessions by the Greek side. Any delay, any objection, could be seen only as posturing. Posturing is normal of course; politicians expect it. But to his fellow finance ministers the idea that the Greek Finance Minister Yanis Varoufakis was not posturing did not occur. When Varoufakis would not stop, their response was loathing and character assassination.

Contrary to some uninformed commentary, the Greek government knew from the beginning that it faced fierce hostility from Spain, Portugal and Ireland, deep suspicion from the mainstream left in France and Italy, implacable obstruction from Germany and the IMF, and destabilization from the European Central Bank. But for a long time, these points were not proved internally. There are influential persons close to Tsipras who did not believe it. There are others who felt that, in the end, Greece would have to take what it could get. So Tsipras adopted a policy of giving ground. He let the accommodation caucus negotiate. And as they came back with concession after concession, he winced and agreed.

Ultimately, the Greek government found that it had to bow to the creditors’ demands for a large and permanent primary surplus target. This was a hard blow; it meant accepting the austerity that the government had been elected to reject. But the Greeks did insist on the right to determine the form of austerity, and that form would be mainly to raise taxes on the wealthiest Greeks and on business profits. At least the proposal protected Greece’s poorest pensioners from further devastating cuts, and it did not surrender on fundamental labor rights.

The creditors rejected even this. They insisted on austerity and also on dictating its precise shape. In this they made clear that they would not treat Greece as they have any other European country. The creditors tabled a take-it-or-leave-it offer that they knew Tsipras could not accept. Tsipras was on the line in any case. He decided to take his chances with a vote.

The stunned and furious reaction of the European leaders was, possibly, not entirely inauthentic. Perhaps they did not realize they were dealing with something not seen in Europe for some years: a political leader. Alexis Tsipras has only been on the international stage for a few months. He is brash, but charming. It would be easy for those as sheltered as Europe’s present leaders to fail to figure him out—to fail to realize that like Varoufakis, Tsipras meant what he said.

Faced with Tsipras’s decision to call a referendum, Merkel and her Deputy Chancellor Sigmar Gabriel, Hollande of France and David Cameron of Britain—and shamefully also Italy’s Matteo Renzi—all sent direct messages to the Greek people, that they would really be voting on membership in the euro. European Commission President Jean-Claude Juncker went further, to say it would be a vote on membership in the European Union. It was an orchestrated threat: surrender or else.

In fact, neither the euro nor the EU is at issue. The plain language of the referendum states that the vote is about the creditors’ terms. The threat to expel Greece is an obvious bluff. There is no legal way to eject Greece from the Eurozone or the EU. The referendum is actually, and obviously, on the survival of the elected government in Greece. The European leaders know this, and they are trying now to ensure that Tsipras falls.

What does Tsipras gain by a “no” vote? Apart from political survival, only this: it is his way of proving, once for all, that he cannot yield to the conditions being demanded.
What does Tsipras gain by a “no” vote? Apart from political survival, only this: it is his way of proving, once for all, that he cannot yield to the conditions being demanded. So then the onus will be back on the creditors, and if they choose to destroy a European country, the crime will on their hands for all to see.

That said, there is no guarantee that Tsipras will win on Sunday. In the January elections, his party only won 40 percent; now he needs a majority. Fear and confusion abound. The Greeks are, in effect, voting for a choice of unknowns, which can never be a sure thing.

If the Greeks vote “no,” there is obvious uncertainty over the economic future. Perhaps the banks will stay shut, the deposits will be lost and the creditors will carry through their threats. The uncertainty is amplified, unavoidably, by the fact that the government cannot campaign to stay in the euro and also explain how it would handle the trauma of being forced out. If there have been preparations, they are a well-kept secret so far.

If the Greeks vote “yes,” on the other hand, the uncertainty is political. SYRIZA may split and its government may fall. What then? There is no credible alternative government in Greece. Moreover, it is hard to think that any government formed to accept the surrender and deepen the depression would last very long.

And it seems certain that after a “Yes,” a surrender, and a deeper depression, the official Opposition would no longer be the pro-European Left that is today’s government in Greece. Europe will have destroyed that. The new Opposition, and someday the government, will be either a Left or a Right party opposed to the euro and to the Union. It could be Golden Dawn, the neo-Nazi party. The lesson of Greece also will not be lost on Oppositions elsewhere, including the rising far right in France.

The irony of the case is that the true hope—the only hope—for Europe lies in a “No” vote on Sunday, followed by renewed negotiations and a better deal. “Yes” is a vote for fear, against dignity and independence. Fear is powerful—but dignity and independence have a way of coming back.

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