The resounding “No” uttered by the Greeks on Sunday offers yet more proof of their rejection of the vicious cycle of austerity. Angela Merkel now finds herself trapped between the will of the Greek people and the inflexibility of her finance minister. La Tribune reports.
The time for bluffing is over. After a week of campaigning in unthinkable conditions, with bank closures, cash rationing, panicking pensioners and media misinformation, the Greeks have once again said “no”. One could argue as to what this “no” is really worth, in light of the high rate of abstention.
But that does not change the fact that, in such dire conditions, more Greek voters came out in opposition to the creditors’ ultimatum than in favour of it.
Risking Grexit to avoid austerity
The Greeks chose to run the risk of Grexit over a new round of austerity and economic stagnation.
Greek voters do not want to leave the eurozone, but the message they sent to those who threatened them with expulsion from the Economic and Monetary Union (EMU) if they voted “No”, including Jean-Claude Juncker and Jeroen Dijsselbloem, is this: Greece is prepared to take this risk to avoid being sucked into the never-ending spiral of austerity.
Rejecting the European logic
Once again – for the second time in six months – the creditors can clearly see the scale of the rejection of the policies they have imposed on Greece since 2010. And once again they must realise that their strategy of fear cannot continue to work.
While Angela Merkel said on Sunday that Alexis Tsipras is “driving his country into a brick wall at full speed”, she must now realise, for the first time since 2010, that her scorched earth policy has failed. The Chancellor, who dislikes taking a firm stance, now finds herself faced with an extremely tough choice.
The Greek authorities are ready to get back to the negotiating table: they never saw the “No” as a vote to split from the eurozone, but rather as a bargaining tool to gain the upper hand in the negotiations.
Greece’s negotiators are in a stronger position with the support of their people, but they have extended an olive branch to their creditors. Angela Merkel must decide whether or not to accept it.
Inaction will lead to Grexit
If she refuses and continues to treat the Greek crisis as a purely financial issue, leaving it in the hands of the ECB and the Eurogroup, Greece will be left with no other choice but to leave the eurozone.
Their banks are in their death throes. The ATMs are empty. On Monday (6 July), the ECB decided to maintain emergency liquidity assistance (ELA) to Greek banks, but made it harder for them to access the funds.
If no agreement is reached with Greece’s creditors, at the very least the ECB would toughen its conditions by devaluing the guarantees provided by the Greek banks to obtain the emergency liquidity. This would cause the Greek economy to grind to a complete standstill, at least for a few days, before negotiations could be reopened.
But if Berlin fails to cooperate, Greece would be forced to print its own currency in order to keep its economy working, and the downward slide towards Grexit would be inevitable.
Stopping the machine
Angela Merkel has the power to stop the whole machine. She can accept Sunday’s result and the decision of the Greek people and continue the negotiations based on the last Greek proposal. This took the core of the plan that the Greek electorate rejected, minus a few exceptions (for example keeping the 30% VAT reduction in the islands of the Aegean Sea, delaying the cancellation of the supplementary pension for the most vulnerable).
This is an acceptable compromise for the creditors. But Athens only accepted these sacrifices as part of the effort to restructure its unsustainable debt, as the IMF recognised on Friday (3 July). The Chancellor must also be prepared to discuss them.
Angela Merkel’s unrealistic promises
There has been a lot of talk about the “unrealistic promises” of Alexis Tsipras, but less has been said about another unrealistic promise: Angela Merkel told Germany she would get back the money Berlin had shovelled into Greece since 2010, as part of an extravagant and impossible financial package.
Demagogy can be found in the most unexpected of places, and now that Angela Merkel’s “unrealistic promise” has also been exposed, she may be forced to accept Athens’ request to renegotiate the future of the Greek debt.
The Chancellor’s responsibility and the future of Europe
This is a quandary for the Chancellor. If she continues down the current road, allowing the ECB, the Eurogroup and her finance minister Wolfgang Schäuble to make the decisions – they believe that Grexit could be a “temporary” measure that would not inflict heavy damage on the EU – she will have to take responsibility for the consequences.
First and foremost, these consequences will affect Greece itself. If Grexit turns sour, Angela Merkel will be confronted with a rapidly deteriorating humanitarian situation.
She will also have to be prepared to go down in history as the leader that tore down what the previous generation had built up. The Economic and Monetary Union will become a fixed exchange rate system. It will be possible to leave or be expelled at any time. This will be an economic mechanism devoid of political direction.
By refusing to accept the reality of the unsustainability of Greek debt, the Chancellor also runs the risk of pushing Greece into unilateral default. She and her finance minister would then have to explain to the German taxpayers that their inflexibility cost them far more than they were trying to protect. Finally, she will have to take responsibility for the under-played economic risk of Grexit, at a time when fears of an economic crash in China are growing…
The Bundestag will refuse to enter into any negotiations without the Chancellor’s approval. And without the go-ahead from the Bundestag, the process is blocked. The German Chancellor has been backed into a tight corner.