Here Comes Grexit–Or a Retreat From Austerity

So it seems negotiations between the Greek government and European financial institutions have reached enough of a standstill that the former is holding a referendum (on July 5–Europeans don’t need years to hold elections like we do) on acceptance or rejection of “Troika” demands while the latter are apparently hoping for a “yes” vote that will effectively force the former into resigning. A “no” vote will either produce a last-minute relaxation of terms by the Europeans, or the much-feared “Grexit”–a Greek withdrawal from the Eurozone relying on its own sovereign currency.

Paul Krugman makes a straight-forward case for a “no” vote and at least a threatened Grexit: how could it get any worse for Greece?

[T]he situation in Greece has now reached what looks like a point of no return. Banks are temporarily closed and the government has imposed capital controls — limits on the movement of funds out of the country. It seems highly likely that the government will soon have to start paying pensions and wages in scrip, in effect creating a parallel currency. And next week the country will hold a referendum on whether to accept the demands of the “troika” — the institutions representing creditor interests — for yet more austerity.

Greece should vote “no,” and the Greek government should be ready, if necessary, to leave the euro….

That’s because the only way out of this mess if Europe sticks to its austere guns is a currency devaluation, which can only happen if Greece has its own currency.

It’s easy to get lost in the details, but the essential point now is that Greece has been presented with a take-it-or-leave-it offer that is effectively indistinguishable from the policies of the past five years.

This is, and presumably was intended to be, an offer Alexis Tsipras, the Greek prime minister, can’t accept, because it would destroy his political reason for being. The purpose must therefore be to drive him from office, which will probably happen if Greek voters fear confrontation with the troika enough to vote yes next week.

Run through the logic here and either Europeans aren’t as afraid of Grexit as we thought, Greeks were engaging in an empty and instantly reversable gesture when they elected the current government, or both sides are locked into ideological positions they can’t or won’t abandon even if the alternatives are disastrous.

Since the Europeans are the ones with the money, and are demanding surrender, further compromise probably depends on a “no” from Greece–which is highly likely in any event.

This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.

So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.