“And I Shall Wear the Creditors’ Loathing with Pride”

Despite apocalyptic warnings from across Europe and within Greece that rejecting the Troika’s latest diktat would represent national economic suicide, Greek voters threw down the gauntlet and voted “no” by a three-to-two margin in yesterday’s snap referendum on creditor demands, despite the fears sown by a cutoff of financial assistance from the European Central Bank that forced bank closures in Greece.

Now the pressure is on the Europeans to determine what happens next, as they seem to realize, given the planned meeting today of the French and German prime ministers and an EU “summit” tomorrow. The Troika strategy of extorting a “yes” note in the referendum and hence a toppling of the Greek government has obviously failed. So now they can reopen discussion on a bailout plan that includes some formal debt relief (acknowledging the reality that the full debt cannot and will not be repaid) and less micromanaging of Greek social policy, or they can effectively guarantee a Grexit (Greek departure from the Eurozone) as the only way Greece can finance even minimal government services.

Paul Krugman thinks a Grexit may be the best way out for everyone, including the Europeans:

Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation.

Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?

Would Greek exit from the euro work as well as Iceland’s highly successful devaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.

The triumphant Tsipras government, however, is not admitting Grexit is a possibility–it is investing every ounce of its new leverage in the proposition of fresh negotiations, and will make many conciliatory gestures towards the wounded pride of the creditors. A very large gesture occurred immediately, when Greek finance minister Yanis Varoufakis–a lighting rod throughout the crisis–announced his resignation in order to give Tsipras a freer hand, and presumably, to give the Troika a political pound of flesh.

But he couldn’t help one more note of defiance:

I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum.

And I shall wear the creditors’ loathing with pride.

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.