While still on holidays, I followed the Greek Referendum and then the sudden Greek capitulation. We still do not know why some of the players have acted the way they have. In case you missed the conditions that the European Commission imposed on Greece, you can check out the documents here, here and here.
I have no sympathy towards Greece for the way it managed its economic affairs in the past but imposing more austerity when there is no safety valve for growth (cheap exchange rate, robust external demand (i.e., world growth), it is self-defeating both for creditors and debtors. Second, there are boundaries beyond which creditors cannot impose policies on debtor-nations. Sovereign rights must be respected.
I wrote in my MINT column that it was time to put the Eurozone project to bed. It appears that I was not alone. Even Germany thinks so. It does not seem to think that the Eurozone, as it is constituted today, is sustainable. That much has been revealed in a leaked transcript of a conference call that Yanis Varoufakis, the former Greek Finance Minister (he had to resign once the Greek government decided to accept all conditions imposed by creditors) had with some hedge fund managers:
At the very same time, Wolfgang Schäuble has a plan…. This is one of the very sweet moments in one’s life when one does not have to theorise, because all I did was to convey the plan as Dr Schäuble described it to me. The way he described it to me is very simple. He believes the eurozone is not sustainable as it is. He believes there has to be some fiscal transfers, some degree of political union. He believes for that political union to work without federation, without the legitimacy that a properly-elected federal parliament can render, can bestow upon an executive, it will have to be done in a very disciplinarian way. He said explicitly to me that a Grexit, a Greek exit, is going to equip him with sufficient bargaining power, with sufficient terrorising power in order to impose upon the French that which Paris is resisting. What is that? A degree of transfer of budget-making powers from Paris to Brussels. [Link]
These are comments made by Varoufakis in that conference call. In some sense, Germany wants to review the design of the Eurozone. It does not like the Eurozone as it is today.
Nothing wrong with that. It is as it should be. Unless there is a greater fiscal and political integration, there is no chance of the Eurozone surviving. This is what I wrote in an email to friends:
Everything that Germany has done on this matter makes sense if we relax the assumption that it wants the single currency project to survive and sustain.
I was partially correct. Germany does not want the Eurozone to sustain in the present shape, form and arrangement.
As for Greece, Schäuble actually offered a good deal to Greece: debt hari-cut and exit. They should have taken it. He was actually being constructive. I criticised them (Syriza government) for not having a Plan B. Looks like they had one. But, they (Tsipras, in particular) did not have the stomach to carry it through.
In the meantime, the IMF published its own analysis (I am yet to read them) that Greek debt was not sustainable. Then, how the European Commission forced through tough austerity measures on Greece without offering a debt hair-cut is baffling. Perhaps, they did not expect Greece to roll over and surrender. They actually wanted Greece to go, perhaps. I thought they only wanted a Syriza exit from Greek government but looks like they wanted Greece to exit the single currency.
Now, IMF Board is informed that the Fund cannot participate in the new bailout programme for Greece because Greece does not fulfil the conditions for the Fund to participate in an exceptionally large bailout programme.
Well, the fat lady is far from singing yet.