UPDATE:
The resounding victory for the “No” vote in Greece’s referendum on Sunday shows that the vast majority of Greeks agree with the vast majority of economists that the European authorities' program has failed and offers no hope for the future.
The referendum's outcome is a triumph for democracy in the face of massive intimidation, media manipulation and deliberate strangling of the Greek financial system, all in order to force a 'Yes' vote. It reaffirms the strong mandate the people of Greece have given the Syriza-led government to pursue an alternative path to allow the Greek economy to recover and end the prolonged economic downturn that has resulted from the policies pushed on Greece by the troika.
The ECB and its partners in punishing Greece should be chastened by this show of resistance, and ideally would return to negotiations with the Greek government with a sincerity and good faith that they have yet to exhibit so far. The international community should also pressure the troika to change course, as members of the U.S. Congress did in a letter to the IMF last week.
It’s ironic but not surprising that the European Central Bank decided Sunday to limit its credit to Greece by enough to force Greek banks to close.
This has pushed Greece closer to a more serious financial crisis than the country has had in the past five years of austerity-induced depression. Why did the ECB decide to take this harsh, unnecessary and dangerous measure now?
It seems clear that the move is in response to the Greek government’s decision to hold a referendum on whether to accept the last offer from the European authorities outlining conditions for continuing official lending to Greece. The financial problems and inconveniences of this week, caused by the bank holiday, are the European authorities’ way of saying, “Vote as we tell you to, or we can make your lives even more miserable than we have been making them.”
The offer on the table includes further cuts to Greek pensions, as well as regressive tax increases. As economist Paul Krugman has noted, these are conditions that Prime Minister Alexis Tsipras can’t accept. “The purpose must therefore be to drive him from office,” Mr. Krugman concluded.
There is considerable evidence that this has been the European authorities’ strategy since the anti-austerity Syriza party was elected in January. Just 10 days after the election, the ECB cut off its main line of credit to Greek banks, even though there was no obvious reason to do so. Shortly thereafter, the ECB put a limit on how much Greek banks could lend to the government – a limit that the previous government did not have.
From the European authorities’ point of view, “regime change” is the only logical strategy. There is also the nuclear option, which is to cut credit to Greece entirely – thus precipitating a financial meltdown that would force the country out of the euro. But German Chancellor Angela Merkel doesn’t want this, and neither does her ally, U.S. President Barack Obama. So European authorities continue to take steps to undermine the Greek economy and government, hoping to get rid of the government and get a new one that will do what they want.
These European authorities had already succeeded in pushing the Greek economy – which was projected to grow by 2.5 per cent this year – back into recession. This was a direct effect of their credit restrictions and the damaging brinkmanship game with the Greek government. Now they have gone further in order to intimidate Greek voters into voting Yes.
Officials such as European Commission President Jean-Claude Juncker have tried to convince Greeks that a No vote would be a vote to leave the euro zone. But this is not true. It could well be that a No would strengthen the hand of the government to get a better deal, given that the most powerful people in the world don’t want to see an economic collapse that forces Greece out of the euro.
The European authorities are offering no future to Greece – no light at the end of the tunnel, especially for the 60 per cent of young people who are already unemployed because of their failed policies. That is particularly cruel since ther are alternatives to years of economic recession, stagnation and mass unemployment.
These alternatives aren’t radical. They are basically the same stimulus policies that dozens of countries, including the United States, implemented in response to the world financial crisis and recession of 2008 and 2009. But European authorities will not allow the Greek economy to recover. The first step for Greece must therefore begin with saying No.
Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C., and author of the forthcoming book Failed: What the 'Experts' Got Wrong About the Global Economy. This is an edited version of an op-ed that originally appeared on the Globe and Mail.