Although much of what you will read in coming days, including this analysis, will be the literary version of rigorous head-scratching in regard to what happens next, we should be careful not to under-interpret the meaning of this vote.
This was a vote that:
–reasserted the democratic self-determination of the Greek people, even when the opposition was threatening to shut down their banking system;
–showed that with the unemployment rate at 25 percent (and youth unemployment rate at 50 percent) there is only so much economic pain a sovereign nation will accept in the name of “austerity” without trying to fight back, even when the consequences of the “path less taken” (no country has ever exited the eurozone) are unknowable;
–showed far more solidarity behind Prime Minister Tsipras and his outspoken finance minister, Yanis Varoufakis, than most observers expected, possibly — I’d say probably — strengthening their hand for what’s coming next.
Which is . . .
Like I said, who knows? The referendum itself was already bizarre in the sense that nominally it was a vote on whether the Greek people would accept the terms of a bailout deal from the nation’s creditors — the European Central Bank, the International Monetary Fund and the European Commission — that is no longer even on the table.
Thus, to some of the harshest austerians from the north — such as Sigmar Gabriel, Germany’s vice chancellor and economy minister — the Greeks have “torn down the last bridges, across which Europe and Greece could move toward a compromise.” To him, the outcome of the vote is simply Greek for: “You can’t fire me. I quit.”
I think he’s wrong, and although this could easily be wishful thinking on my part, I believe the more likely outcome is that the parties will return to the bargaining table with a better understanding among the creditors of the way forward.
One important and, amid the hurly burly of the past few days, overlooked clue that this more optimistic path may now be open is a new International Monetary Fund analysis that finally recognizes the limited ability of Greece to repay all of its outstanding debts and even more important, its inability to grow its way out of this mess unless a significant portion of the debt is restructured. For the record, that’s what Varoufakis has been saying for months and others among us have been saying for years. And contrary to her economic minister, according to John Cassidy, German Chancellor Angela Merkel and “many European leaders” share that recognition.
None of which, to be clear, lets the Greeks off the hook regarding necessary fiscal reforms regarding spending and revenue collection. But there’s fundamental math at play here that says that if your debt grows faster than your economy, your debt burden will unsustainably expand. Because of austerity and the absence of debt forgiveness, that has been the story of Greece and its creditors.
That story must change. In recent months, the Greeks and their creditors have been stuck in a mode that should remind you of the adage that neurotic behavior is when you keep doing the same thing that isn’t working, hoping the results will be different next time.
To be fair, it’s not that simple. There are structural political factors in play, endemic to the fact that the currency union is not a political union, nor a fiscal union, nor a banking union. As one German economist put it to me, “How do you think the people of Manhattan would like bailing out Texas?” Fair point, and a non-trivial challenge, for sure.
But I still think that this vote might shake the players out of their bad equilibrium.
Of course, it’s also possible that everyone will snap back to their old ways, which will quickly lead to cascading defaults, a Greek exit from the eurozone, and a period of great upheaval as the Greeks reintroduce their own currency.
Even that path, however, with all its inherent disruption, could still prove to ultimately be less painful than the current one for the Greek people. A big shortcoming of much of the analysis in recent days is the absence of the essential “compared to what” question, where “what” is the status quo of depression-level unemployment and caps on ATM withdrawals.
Even if much of the financial media underweighted that question, a surprising large share of Greek voters did not. And they decided that compared to what they’ve been going through, it was worth it to support their government against those who were insisting that they suffer under the yoke of a clearly unsustainable and deeply painful austerity.
The way forward isn’t clear, but at least a majority of Greeks are trying to move in a different direction. In the name of democracy and sane economics, we should support them.