Sunday, June 28, 2015

If Greece Votes Yes

Greece PM Alexis Tsipras has a problem: The Greek people are going to vote Yes on the referendum.

Greek ATM line on Saturday, 27 June 2015.
Early polls show Greeks supporting a deal with creditors. A survey by Alco Polling Institute, published in Sunday's edition of the Proto Thema newspaper, found 57% of 1,000 respondents say Yes to a deal with creditors, while 29% say No. Another poll, by Kapa Research, finds 47% of respondents in favor of an accord, 33% against.

It's early, of course. Tsipras has time to change people's minds. But he has not done a good job, so far, of explaining what a No vote is for.

Sadly, Tsipras is portraying a No vote as merely a tool for achieving a better bargaining posture. Which, of course, assumes that the creditors will still want to play kick-the-can with him. (They might not.) In essence, he's saying "Vote No, and I will have thicker boots with which to kick the can!"

Tsipras has created a huge sense of drama with the referendum. As a leader, he needs to rise to the occasion now, with a dramatic, believable, concrete vision of how Greece can get itself out of its current mess—and a Plan B for moving ahead without the creditors' "help," should it come to that.

Tsipras needs to articulate a set of talking points that will be put in front of the creditors; demands, if you will. Not only practical demands based on sound economics, historical precedent, and international law, but moral demands based on basic fairness and humanitarian concerns. He could cite the numerous concessions that were made to West Germany by 21 creditor nations in 1953, when the Germans were allowed extremely lenient terms for repaying its Marshall Plan debts (debts that were mostly forgiven, ultimately). He could ask for a six-month moratorium on payments (and time to implement key reforms) to give the Greek economy a chance to recover at least a little bit before plunging back into an aggressive repayment schedule. He could insist on various other forms of consideration as well, including maturity extensions, interest reductions, and outright debt forgiveness—all of which were offered to (and taken advantage of by) Germany in 1953.

He needs to remind the Germans of where they've been, how they got to where they are; what kinds of treatment they got when they were behind the 8-ball. He needs to guilt them into doing the right thing.

As a leftist politician, Tsipras also needs to come up with a plan for taxing the rich with a wealth tax and a (more) progressive income tax. Total private wealth in Greece is almost a trillion Euros. Greece owes 7.2 billion Euros in debt payments next year. A very small tax on Greek wealth would make a huge dent in the latter figure.

The creditors have not been terribly flexible. (Let's not mince words. They've been dismissive, rigid, and thuglike.) Therefore, Tsipras needs to have the Greek people's support for a set of fallback options, in case things don't go well. Tsipras has spoken many times of "red lines" that can't be crossed. (But his last proposal was sent back to him, you may recall, with copious red-ink edits, mocking his "red lines" metaphor.) Tsipras needs to know that the Greek people will support him if the creditors must be persuaded the hard way of Greece's need for flexibility. Greece may need to suspend payments (enter into default) proactively, as Argentina did in 2001. (This worsened Argentina's problems initially, but led to average GDP growth of 7% per year from 2003 to 2009.) Tsipras should explain to the Greek people that default is a possibility, if things go wrong. He should be honest about this possibility.

Tsipras has only a few days to do an amazing sell job. He needs to get busy. As things are, if the referendum is held today, the people are voting Yes. Yes to staying in the Eurozone, but at a horrible cost.

If the referendum comes to pass, and people vote Yes (and Tsipras doesn't resign in shame), extremely harsh, regressive austerity measures will be imposed. There'll be protests in the streets. The current government will get a no-confidence vote. Interest on debt will become even more crushing, and the cycle of despair will continue, until there's an involuntary default, for real.

Tsipras has only one chance to get this right. Here's hoping he can do it.


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