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After the Greek ‘NO’: Europe quo vadis?

Gérard Roland, E. Morris Cox professor of economics and professor of political science | July 6, 2015

Tsipras won the referendum, but where do we go from now? Most, if not all of my Greek friends, intellectuals I highly respect campaigned for the Yes. I understand many of their concerns. Greece was institutionally not ready to enter the Eurozone.

Greece politics are dysfunctional and clientelistic — there has been fiscal irresponsibility, lack of transparency and a quasi-failed state. Why would Tsipras be any different? Syriza slogans sound like the traditional ultra-left in Europe: say NO to everything, pretend the unsustainable welfare state status quo will survive and deny fiscal realities. The last five months of negotiations brought nothing — Tsipras seems to have lost most of his allies among social democrats in the Eurozone.

These arguments are all correct. I fear some of my Greek friends may have also been influenced by the Eurozone blackmail saying that a NO vote would mean exit from the Eurozone, something Greeks do not want.

Nevertheless, the Greek NO is also the most potent rejection of the misguided austerity policies imposed by Europe on Ireland, Spain and mostly Greece. It is a shame that the European left in France, Germany, Italy and other countries did not come out as strongly as Tsipras and the Greeks against this terrible austerity policy.

Americans and mainstream economists have been watching in dismay the terrible spectacle of the Great Depression scenario unfolding in parts of Europe. U.S. Policies though not optimal have been so much better than the European response to the 2008 crisis. Greece has been hurt the most by austerity policy. Should it now be punished and be excluded by the austerity club?

Eurozone leaders have now been humiliated by Greek voters after having tried to humiliate the Greek government elected in January. What next?

Punishing Greek voters by continuing to force Grexit would not look good to most of the outside world. It would continue to undermine Europe’s credibility among large parts of the electorate in European countries that have been hurt by austerity policies. History will not forget those responsible for killing the European dream.

Greek voters were not afraid to defy the Eurozone blackmail. Their courage, pride and determination should be praised. Most importantly though, now is the time for healing. The rift inside Greece between the NO and the YES camp must be healed, and this is the responsibility of the Greek government. It is also time for healing of the bad blood between the Greek government and the Eurogroup.

Whatever has been written before the referendum, the NO outcome strengthens Tsipras’s bargaining position, but offering the resignation of Varoufakis is a clear sign of good will on the part of the Greek premier. Enlightened European leaders should now look to the future, not towards the past. They should not be afraid to eat humble pie and finally agree to a substantial haircut on Greek debt. Once this is said, the Greek government should agree to work to reform its country.

The troika is probably not the most competent to help with this. They do not know how to do state-building. Tsipras should appeal very broadly to international experts on state-building. I am afraid there is real lack of competence within Syriza. Pride and defiance are not even the first step in that direction. They should, last but not least, come up with a plan to balance their budget, and even more importantly try to get the economy growing.

The ECB and Merkel now will decide which options are closed to Greece. What matters is whether the EU has a future and can be run in a more democratic way. The Greek referendum was perhaps the first step towards a more democratic EU. I hope this is the case. Europe is truly at the crossroads now.

Comments to “After the Greek ‘NO’: Europe quo vadis?

  1. Sadly, as you all know, Tsipras finally succumbed to the pressure and his able finance minister has resigned while remaining a member of parliament. To reject the most recent deal offered by lenders would have meant withdrawing from the Eurozone with the perceived risk that this might jeopardize Greece’s membership in the European Union.

    Mr. Farros is probably pleased that the Greek parliament in fact approved the austerity measures demanded by Germany and other Eurozone lenders in order for Greece to be able to remain in the Eurozone and revive talks on a multibillion dollar bailout package. As with previous bailouts, the benefits of this one will mainly go to banks.

    Most economists, myself included, believe that the country will never be able to pay off its massive debt and that the adopton of the current bailout package serves no other purpose but to postpone the day of reckoning when Greece will be forced to withdraw from the Eurozone.

  2. Reminds me of 35 years ago, when as a rookie teacher I walked out of a classroom of 9th graders quietly taking a test and ran down the hall to turn in a paper in the front office. I returned to find wholesale cheating and laughing going on.

    For me, the situation in Greece is primarily an ethical issue, not an economic one.

    I think Professor Roland has written wisely about both the ethical and economic problems in Greece. Thank you.

  3. I believe that 62% of Greeks voted NO for the misguided austerity policies and 38% voted YES for the idea of the European Union.
    Also,75% of the Greeks generally vote YES to stay to the European Union.
    Unfortunately, the situation in Greece is very unpleasant.
    For 5 years, tough measures were taken,thousands of businesses were closed,policy and democracy were discredited,tax evasion was not treated,the cost of life is increasing (!) and the result is the current situation with closed banks.
    All these days, we hear a lot of voices shouting to stay in the European Union but no solution appears. This delay is a catastrophe. I have no explanation why we can not come up to a solution.
    But I strongly believe that with the proper long term logical measures inside European Union we can fix our economic problems.
    I wish that until the end of this week the decisions for Greece will be positive.

  4. In a culure science perspective, Greece embodies a significant value for Europe. Economics should not disregard this point — and it does NOT: …Europe quo vadis?
    And where does economics and technology and sciences in general guide us in our future? Greece as the mother of polis and politics will continue to surprise — either this or that way.

  5. If only European policymaker had the political power and leadership skills needed in such a crucial time for Europe but for the world…

    BUT the EU is doomed.

    I do not see any significant compromise happening and it is in part because, unfortunately, people like Professor Roland do not have real clout in Bruxelles.

    Part of the conversation should also be how terrible austerity was in the tiny, tiny Baltic countries (some smaller in population and poorer than Santa Clara county) and how it cannot be duplicate it.

    I suggest watching the political master class of Paul Martin [former Prime Minister of Canada], which partially explains why austerity only works in some big countries in very specific circumstances and when nobody or almost nobody else is doing it.

  6. Business rationality signals that Greece should return to the Drachma assisted by a bridge loan from the IMF.

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