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Will Rejection Turn the Greeks Hard Left?

Greece officially applied for a three-year loan from the European Stability Mechanism yesterday, and has until the end of today to submit a detailed reform proposal. If the proposal is approved by “the troika” of creditors (the European Central Bank, the IMF, and the European Commission), it would trigger a further meeting of European leaders over the weekend where Greece’s ultimate fate would be decided.

Mario Draghi, president of the European Central Bank, however, appeared to pour cold water on the proposal clearing that first hurdle, saying that “this time it’s really difficult.” Christine Lagarde of the IMF also sounded a note of caution, insisting that any deal will have to include debt restructuring for Greece—something that Germany and several Eastern European countries may find difficult to swallow. As for the Eastern Europeans, many just don’t trust the Greeks to follow through: “It is one thing to put a plan on the table, but implementation is something else. Why should people believe that the new [Greek] proposal will be for real?” the Latvian central bank governor said.

Leaks in the Greek press, however, indicate that the proposal is significant: real cuts to sweetheart pensions and noteworthy tax raises appear to be on the table. And the fact that the far left wing of Syriza has started protesting loudly backs the leaks up, and suggests that Greek Prime Minsiter Alexis Tsipras is facing a revolt in his party by pushing the deal through.

The deal has the support of Greece’s other parties, so it ought to pass the Greek parliament, if it comes to a vote. It’s a big if, however. If the deal is rejected by the Europeans, Tsipras will no doubt fall back on the more radical elements of his coalition, who are calling for measures such as the nationalization of banks, control of mass media, and the takeovers of major businesses. There are people in Syriza who want a forced exit from the euro; the hard left sees a serious economic crisis as an opportunity to build the kind of Venezuelan mess that communists somehow confuse with social progress.

It’s not looking good for Greece these days. More and more Europeans believe that the country simply can’t implement the kinds of changes that would make its continued presence in the eurozone possible. They could well be right. But more and more people in Greece are so angry and so desperate that genuinely radical consequences of a Grexit cannot be ruled out.

The root problem, as always, isn’t cold-hearted Germans or lazy Greeks. It is a monetary union that doesn’t fit the realities of European life, and the inability of Europe’s institutions to reform it.

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  • Andrew Allison

    The only thing I’ve read about Lagarde insisting on curing last month’s default. Meanwhile, Merkel has reiterated that debt restructuring is off the table. As I’ve commented previously, the reforms are required to obtain new loans, not the old ones. Hopefully on Sunday the EU will just say no to Greece and but an end to this farce.

    • dawnsblood

      Maybe. What I have read is that Merkel has said no to a ‘classic haircut’. That means (I think) no reduction in the principle owed. I believe there is at least a small chance she’ll be talked into something creative like knocking off more interest and/or lengthening the payback period of the debts to 40 or 50 years.

      I still think it is likely Greece leave the Eurozone really soon but I know the power of peer pressure and the power of self delusion enough not to close the door until it is official. . .

  • Gene

    I encourage Greece to go full communist; it will work out so well for them!

  • FriendlyGoat

    I’m still betting Germany does not allow itself to look overbearing in the end of this. I still believe that 20th century history will be one reason why. The notion that Germany is going to push Greece over into the arms of Russia just doesn’t seem credible.

  • Jacksonian_Libertarian

    “The root problem, as always, isn’t cold-hearted Germans or lazy Greeks. It is a monetary union that doesn’t fit the realities of European life, and the inability of Europe’s institutions to reform it.”

    Big Government, or rather the Big Government Monopoly, is always a bad deal. Monopolies will always suffer from the disease of a lack of the information and motivation that the “Feedback of Competition” provides. People hate change and will avoid making any changes for as long as they can. This is why the Government Monopoly and Monopolies in general so commonly “kick the can down the road”. Unless the people are motivated by the loss of their jobs if changes aren’t made, and have the information to make changes that are really improvements, they will do Nothing. This is why the free market is responsible for all of mankind’s advancement over the ages, and why Government Monopolies so rarely last longer than a few generations. This also explains why Democracies are so much superior to Authoritarian Governments, Democracies have a limited amount of competition at the top to promote changes.
    So what we have in the EU and the Euro is a Big Government Monopoly that prevents all change or improvements, and that every member nation would be better off without. That the Greeks want to trade the EU and Euro in on an even larger local Big Government Monopoly is a pretty sad commentary on their political sophistication, and a rejection of the Democracy the Greeks originated.

  • Kevin

    A plan that dribbled out the money in return for verified progress on reforms might over one Greece’s credibility problem.

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