Greece has requested a 29.1 billion euro loan from the European Stability Mechanism. Given that such a loan would probably take more than a month to negotiate, require similar conditions to the ones Greece is currently rejecting, and the debt payment is due today… I think it is safe to call this a red herring.
What is all the more remarkable is how uniformly people across Europe and Greece are against Grexit. Virtually no one outside of members of a few conservative groups have come out for it. The pain Greece would feel from Grexit would be great. And yet, this seems to be where we are headed. I suppose the saying that a committee can make a decision dumber than any of it members comes to mind…
The options should be Greek reform underwritten by billions of euros from the Eurozone, or Greek reform underwritten by Greek hardship. The second gives Greece the right to chose its own system and removes the Europe-wide uncertainty we are experiencing. The former would certainly be more comfortable for Greeks and likely force more reform, if not the right kind of growth-enhancing reform Greece needs. But sometimes the hard road is necessary. Hard roads for hard heads, I suppose. And there are a lot of hard heads currently making decisions in Athens.
On the popular opinion front I am impressed with the level of recognition we are seeing in the European media that the Eurozone loans were largely wasted and will never be fully repaid, but I still feel the train wreck that Alex Tsipras has set in motion will prevail. It sets the agenda, if you will, and leaves a choice of yes or no. That does not leave much room for further negotiation. It leaves none, and based on media reporting Greeks do not sound as worried about the implications of a no vote as they should. What should be a referendum expressing a nation’s rejection of austerity in favor of a more effective prescription (growth-enhancing reforms and investments such as cutting red tape, reducing inefficiencies, and fostering entrepreneurship) is instead an in/out vote on the euro, framed by the Tsipras government as a negotiation tactic. Clearly there is a great deal of foolishness to go around in this saga. At least Grexit will force the hard choices that Tsipras currently rejects making. What will be especially interesting is what happens after the first default. As several economists have pointed out, there is no actual mechanism to force a country out of the euro. Tsipras does not actually want to go. It could get messy.