The Greek Referendum: Yes or No?

by George Hatjoullis

An astonishingly large number of people who are not Greek Citizens and do not have to live in Greece are offering Greeks advice on how to vote. These opinions have been extensively utilised by the two camps as part of the propaganda war. My own blogs have been careful not to offer advice but to focus on outcomes arising from different decisions. It is not for me to tell Greeks what is best for them. However, it has been necessary to remind Greeks that they do not have exclusive ownership of democracy. The people of the other 18 eurozone countries, and indeed the wider EU, also have rights and one such right is not to underwrite the further extension of credit to Greece. The response of Greeks to whom I have pointed this out is to ignore the point and assert that the people of Europe are with us. Certainly a vocal group support the anti-austerity and anti-EU/eurozone position but there is a larger group that have expressed no view. My sense is that this silent majority could care less about Greece. Appeals to democracy are really shallow. The EU is not undemocratic. Membership, however, does mean giving up some national sovereignty and the eurozone even more so. Let us not confuse the two. It is a prime example of how truth is the first casualty of war. My attempt to remain unbiased (bound to fail) is why I have stopped re-blogging Varoufakis’ pieces. He is now on a campaign trail. Good luck to him.

The Syriza position was, from day one, that Greece needs debt relief. This has always been correct. The IMF made no secret of their view that this is the case. The IMF has now repeated this view in their latest analysis of Greek debt sustainability. The European Commission accepts this position. Yet it has never figured in the reported discussions. The reason is that most of the 18 eurozone partners, notably Germany, are reluctant to grant such relief. It is, as I have repeated in my blogs, a matter of trust. They do not trust Greece and they specifically do not trust Syriza. This may or may not be ‘unfair’ but it is a fact. Syriza, rather than try to build trust, has done its best to eradicate any crumbs that may have survived. The question of trust comes down to requiring Greece to reform and then receive debt relief. The problem for Syriza is that reform involves austerity and Greece is in no position to cope with more austerity. After a 25% fall in GDP, the last thing Greece needs is anything that suppresses domestic demand and economic activity. It is a bit of a dilemma but easily resolved if there is trust. The debt relief can then be given ‘up front’.

The economic problem for Greece is to raise the share of the private sector in GDP and to boost the productivity of this sector. It needs to improve tax collection. It needs to improve public and legal administration. It needs to extract more value from public assets. Basically it needs to start functioning more like Germany and less like an emerging market. It is time to ’emerge’. In the medium term such developments will boost GDP but in the short-term there will be negative economic effects. Greece no longer has capacity to absorb such effects without serious risk to the social fabric. This is the reality that Syriza has tried to confront and Germany has tried hard to ignore. The EC and the IMF have been more sensitive to this.

Syriza was met with cold hearts and suspicion when it took office. It responded with bravado (Greeks are good at bravado) and took a conflict stance with its eurozone family. This was never going to work and has brought us to where we are today. This is not to say that obsequious acquiescence would have solved the problem. However, something in between might have fared better. Syriza was carried away by its own election rhetoric and forgot (or more likely did not know how) to change to diplomatic tack. It nevertheless banged a valid drum loudly. Tsipras even declared he would take responsibility for walking away from a bad deal. But he did not take responsibility. He handed it back to the electorate and called a referendum. This was the point at which my not very well disguised sympathy for the Syriza position evaporated. I too began to feel this lack of trust for Syriza. However, I do not matter as I am not a voter or a creditor.

The question for the voters is not really about the last deal on offer or about staying in the eurozone (though it may have implications for this). It is a vote of confidence in Syriza’s approach to negotiating with the institutions. It is a vote of confidence in Tsipras, Varoufakis and Syriza. Varoufakis has implied he will resign as FM if the country votes Yes but Tsipras has made no such offer. I do not think he will resign even though he will have been told that his approach is wrong. The issue is whether he will change his approach and how effective this will prove. If the country votes No then it endorses the approach to negotiation taken by Syriza. This is Greece’s democratic right but, as I said at the outset, the rest of Europe also has rights, including the right not to support Greece. It is a dangerous situation and for Europe as well as Greece.

If the country votes Yes and Syriza takes the hint, what happens next? New elections may solve nothing. Moreover, one can hardly have confidence in Samaras et al taking over negotiations given culpability in the present mess. I suggested, in a published letter to the FT, that an interim government be appointed (not elected) containing people trusted by both the institutions and Greek parliament. I had in mind the appointment of Mario Monti in Italy at a crucial juncture in the eurozone crisis. It helped stabilise Italy and the eurozone. Greece may need a similar initiative in order to rebuild trust. Certainly, a continuation of the conflict approach will only hurt Greece’s economy and push both sides further apart. It will also push Greece towards the exit. For many it seems this is desireable. It may well be true Greece should not have joined the eurozone. This does not mean exit is a panacea. Membership has resulted in extensive ‘neural pathways’ being formed and an abrupt break could have serious consequences.

I cannot advise people how to vote. I can only say think about it carefully before you do and think with your head and not your heart.