Greece should reject the Eurozone’s latest ultimatum

  • July 8, 2015

Capitalism & Crisis

Just two days after Greek voters rejected their creditors’ ultimatum, Tsipras is given another one. It’s time to follow the people’s lead and say NO.

Last Sunday, the people of Greece resoundingly rejected the creditors’ ultimatum for further self-defeating austerity — but the message apparently never reached Brussels. By Tuesday night, the seemingly unimpressed finance ministers of the Eurogroup had already issued another ultimatum: Prime Minister Tsipras now has 48 hours to submit a new proposal with far-reaching concessions to obtain a fresh bailout or “face a banking collapse, a humanitarian emergency, and the start of an exit from the single currency.”

Basically, the Eurogroup is acting as if Greece’s historic referendum never took place. If it wasn’t clear already, they just wanted to emphasize it one more time: Syriza’s democratic mandate and the wishes of the Greek people are irrelevant.

As the Financial Times reports:

In the strongest language since the start of the six-month stand-off between the far-left government in Athens and eurozone lenders, EU leaders said the NO vote in the weekend referendum had severely constrained their ability to offer Greece aid and warned any new bailout deal would include much tougher terms than those that could have been reached just two weeks ago.

In other words: the Greeks said a loud OXI — and the German-led creditor cartel replied with a firm NEIN of its own. To punish Greece for its insolence and lack of discipline, they then proceeded to put a big monetary gun to Tsipras’ head: stand down or be gone.

In yesterday’s piece, I already noted how, despite strengthening Tsipras’ hand at home, the sheer scale of the victory would also put the prime minister in a very awkward position. Basically, to save the Greek economy while keeping it in the euro, Tsipras now has to sign up to a deal that’s even worse than the one he just asked his voters to reject. At the same time, having opened Pandora’s box of popular hopes and expectations, he will find it hard to climb down.

Whatever Tsipras now decides, one thing is clear: this week we are going to see the naked monstrosity and full intensity of Europe’s anti-democratic attitude revealed in broad daylight. “The guillotine has been readied,” one EU official was quoted as saying. European Commission chief Juncker was equally adamant: “I’m strongly against Grexit, but I can’t prevent it if the Greek government is not doing what we expect the Greek government to do.”

To add weight to this brazen threat of expulsion, European Council President Donald Tusk called an emergency meeting of all 28 EU member states for Sunday — including the countries that are not inside the Eurozone. The message is clear: if no deal is reached by the end of the week, the whole EU will bond together to execute a non-anesthetized monetary amputation of pesky little Greece, despite the overwhelming will of its people (and its government) to remain within the Eurozone.

Right now, Tsipras’ only hope for a better deal lies with Paris, Rome and Washington. US President Barack Obama is expected to insert himself directly into the fray on Wednesday and to exert strong pressure on Merkel to keep Greece inside the euro. Mindful of Greece’s geopolitical position, the United States fears that a Grexit may push Tsipras into the arms of Putin.

Meanwhile, a minor rift appears to have opened up between the German-led camp of surplus countries and the center-left Franco-Italian axis, which has adopted a slightly more conciliatory tone towards the Greeks in recent weeks. Christine Lagarde of the IMF could have been a potential fourth “ally” for Tsipras in the negotiations, especially after the Fund admitted last week that Greece does indeed need debt relief, but this bridge has since been burnt by Greece’s unprecedented default on the IMF.

All of this means that Tsipras is now entirely dependent on forces outside of his control. And with just 48 hours to go, it is not at all clear whether this internal Eurozone rift or the external US pressure will be enough to weaken the intransigence of the German-led hardliners. The French and the Italians stand alone against a unified front of 16 euro countries, most of which have reportedly “resigned” to the inevitability of a Greek exit. As Wolfgang Münchau noted the other day, “Grexit is now the default position.”

Given this constellation of forces and the acute economic emergency at home, there seems to be only one sensible thing for Tsipras to do right now: to fly back home and inform his people that he really tried to restart negotiations in good faith but was rebuffed by the creditors, who presented him with yet another ultimatum and yet another disastrous and self-defeating austerity program.

This announcement should then immediately be followed by a series of rapid unilateral moves to stave off financial collapse while formally staying within the euro, at least until the government can get the proper preparations in place for a more radical rupture with the single currency.

These unilateral moves would include taking over the four systemic banks, issuing an emergency decree to seize the central bank, replacing its governor and taking control of its secret reserves, and immediately starting to issue fresh liquidity (in the form of IOUs and 20 euro bills printed by the Bank of Greece without the ECB’s approval) to keep the economy going.

As Ambrose Evans-Pritchard reports, Tsipras rejected this precise course of action after Sunday’s referendum, deeming it too risky and too confrontational. But now that the creditors have taken their financial blackmail to a whole new level and the domestic economic emergency is spinning out of control, it looks like he will soon run out of other options. The choice — rupture or surrender — is still the same, but the circumstances have changed dramatically. Now the streets are full and the banks are empty. This is the time for bold action.

Last Sunday, 61% of Greeks said NO to austerity and financial blackmail. Next Sunday, Tsipras should do the same.

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Jerome Roos

Jerome Roos is an LSE Fellow in International Political Economy at the London School of Economics, and the founding editor of ROAR Magazine. His first book, Why Not Default? The Political Economy of Sovereign Debt, is forthcoming from Princeton University Press.

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