Greece’s membership of the euro is now in doubt. How did it come to this?by George Magnus / July 6, 2015 / Leave a comment
They may be enduring an economic hardship unknown in advanced economies in modern times and be limited to withdrawing €60 a day from their banks, but nothing was going to deter the OXI (NO) voters from having their party in Athens’ Syntagma Square after the Greek referendum. With over 61 per cent of the vote, they gave strong support to their government’s refusal to subscribe to loan conditions it had accepted the previous week. This detail was lost, though, in a crowd that rejoiced that a small, economically depressed country had rejected the diktat of its European partners and regained its dignity. Antonis Samaras, the last Prime Minister and head of the conservative New Democracy party resigned. Such was the mood of the moment.
A more nuanced reality, however, soon began to emerge. While Prime Minister Tsipras insisted that the vote had given him greater strength to negotiate with Greece’s creditors, Deputy German Chancellor Sigmar Gabriel accused him of taking down the last bridges on which Greece and its partners could have forged a compromise. The following morning, Finance Minister Yanis Varoufakis, who had accused his partners of terrorism, resigned, tweeting that he wore their loathing with pride. He acknowledged that his departure was, in effect, to help build goodwill for Alexis Tsipras to re-engage in negotiations with creditors.
However these negotiations go, it is clear that the No camp’s rejection of austerity conditions is incompatible with opinion poll findings that most Greeks want to stay in the Euro. If Greece and its creditors do reach any kind of agreement, new money and debt relief will only be traded for a rigorous commitment to reforms, including many that are anathema to Syriza. For now, the focus will be on the solvency of Greek banks, the actions of the European Central Bank, and the Greek government, and how, if at all, it can pay its bills and loan repayments. No one really wants Greece to leave the euro but its continued membership hangs by a thread. How on earth did it come to this?
To understand why Greece has become Europe’s fault line, we have to delve much deeper than the often self-serving discussion propagated by several eminent US and UK economists and intellectuals, for whom the crisis is attributable to…