With time running out to keep Greece nominally solvent and still in the Eurozone, the Greek government submitted a new proposal to its major creditors (the “Troika”) yesterday that…well, actually seems to have been pretty well-received:
A top eurozone official says Greece has submitted “thorough” proposals aimed at getting a vital third bailout and averting a possible exit from the euro.
Eurogroup President Jeroen Dijsselbloem said the eurozone would discuss a response to the plans on Saturday.
European Commission President Jean-Claude Juncker, European Central Bank President Mario Draghi, International Monetary Fund head Christine Lagarde and Mr Dijsselbloem have held a conference call on the new proposals.
Mr Dijsselbloem said the new Greek paper was “a thorough piece of text” and that support from the Greek parliament would give it “more credibility”.
The Greek proposal seems to have taken a lot of observers by surprise, since it includes what is arguably an even harsher austerity package (obviously there could be something hidden in the fine print that changes this assessment) of VAT increases and pension cuts than the one that Greek voters rejected by referendum on Sunday, an outcome that Greek PM Alexis Tsipras and his Syriza party actively sought. Greece has “capitulated,” it’s “made peace with austerity,” etc. And, OK, that’s true I guess. But what else were they going to do?
For all its campaign rhetoric about pushing back against austerity, Syriza is a political party in a democratic system, and those tend to be very invested in avoiding short-term pain. Despite the fact that there’s a strong empirical case that Grexit would be in Greece’s best long-term interest, they probably can’t get to that long-term benefit without enduring a whole lot of short-term pain in the form of currency devaluation and inflation. Krugman has made the case that Grexit’s negative effects probably won’t be any worse than what Greece is already going through, having been forced to close its banks this week and with Greek businesses accepting Turkish lira and Bulgarian leva as currency in order to try to buoy the country’s collapsing tourist business. But even if Grexit’s harms can’t be any worse than the status quo, what if they go on longer? Syriza has to be accountable to the voters at some point, and even though Greek voters just rejected austerity, that won’t stop them from holding Syriza accountable for Greece’s problems, whatever their cause, the next time they get a chance to vote. You’ll go broke pretty quick betting on the chances of any democratic electorate behaving rationally or consistently. Syriza may be ultimately screwed no matter what happens next, but maybe they still think staying in the Euro (which is still what most Greeks want, speaking of electorates behaving inconsistently) is the safer political choice. At any rate, even if Tsipras wants Greece out of the Euro, the currency’s continuing (and frankly a little baffling) popularity among Greek voters means that he needs the Eurozone to kick Greece out in a way that makes the Troika look like the bad guys, so he has to make one last grand gesture that the Troika can then reject.
This process has always been more about what the Troika is prepared to do than what Greece has been doing, since Greece’s only real power move is to do something that could well be political suicide for the political party that does it. Is the Troika prepared to shave Greek debt, to provide it with a way out of its austerity-induced depression and the otherwise unbreakable downward cycle that it’s in right now? Like I asked the other day, is the Troika interested in saving Greece or just beating up on a bunch of Greeks? The answer to that question will determine whether or not Greece stays in the Euro.
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