Fair enough to let Greeks choose between austerity and leaving the euro. But they may not be given even that choice
By Buttonwood
ODYSSEUS was forced to choose between two routes for his ship: one that passed close to a sea monster (Scylla) and another that skirted a whirlpool (Charybdis). For a while, Greeks have in effect faced a similar choice, between austerity (as a condition for assistance from its creditors) and leaving the euro. Asking them explicitly to make this choice in a referendum might seem fair enough.
The problem is that this choice has never been made explicit. Syriza came to power on a programme of ending austerity and keeping the euro. Months of negotiations with creditors have shown that this option is not available. But the planned referendum, if it occurs, does not make this clear; instead the question will be
Greek people are hereby asked to decide whether they accept a draft agreement document submitted by the European Commission, the European Central Bank and the International Monetary Fund, at the Eurogroup meeting held on June 25.
Clearly, the government will campaign for the answer No. As my colleague wrote earlier today, this is dangerous brinkmanship. Greek funding runs out on June 30th (Tuesday). Alexis Tsipras, the Greek prime minister, asked for an extension of emergency assistance to allow the referendum to take place. The Eurogroup statement issued this afternoon appears (though there might be some wriggle room) to rule this out:
Since the 20 February 2015 agreement of the Eurogroup on the extension of the current financial assistance arrangement, intensive negotiations have taken place between the institutions and the Greek authorities to achieve a successful conclusion of the review. Given the prolonged deadlock in negotiations and the urgency of the situation, institutions have put forward a comprehensive proposal on policy conditionality, making use of the given flexibility within the current arrangement.
Regrettably, despite efforts at all levels and full support of the Eurogroup, this proposal has been rejected by the Greek authorities who broke off the programme negotiations late on the 26 June unilaterally. The Eurogroup recalls the significant financial transfers and support provided to Greece over the last years. The Eurogroup has been open until the very last moment to further support the Greek people through a continued growth-oriented programme.
The Eurogroup takes note of the decision of the Greek government to put forward a proposal to call for a referendum, which is expected to take place on Sunday July 5, which is after the expiration of the programme period. The current financial assistance arrangement with Greece will expire on 30 June 2015, as well as all agreements related to the current Greek programme including the transfer by euro area Member States of SMP and ANFA equivalent profits.
Events could thus overtake Mr Tsipras, as a bank run intensifies. If Greece is in default to the IMF after Tuesday, can the European Central Bank keep giving the support to Greek banks that have kept them afloat? We could have capital controls by Monday and Greek workers may have to be paid in IOUs. By the time July 5th arrives, the economy may be in chaos.
Reconciling international debts with democracy has always been tricky. The Greek argument that the creditors are being "undemocratic" only makes sense if you believe that the only votes which count are those of debtor nations; a majority of Germans do not want Greece to stay in the euro. If we are being democratic, then all the nations in the EU should vote on whether their taxes should be used to help Greece; such a vote might not go the way Greeks want. Voters in one country may demand that the voters of another country lend them money, but they cannot make it happen. If they want to borrow, both sides will aim for the best possible terms they can achieve.
If the referendum approach was part of the plan, then Syriza should have called the vote for this Sunday, before the bail-out expired. But that would have involved a vote on the terms on offer a week or so ago. Syriza also hoped that, by taking things to the wire, the creditors would give in. That didn't work. It is possible, of course, that the whole referendum idea is another tactic, designed to force the creditors to rethink. It may just have made them more exasperated.
Back to Odysseus. He chose to pass close to Scylla, sacrificing a few sailors, rather than risk losing the whole ship to Charybdis. Mr Tsipras seems to have opted for the whirlpool.
