The radical left-nationalist right coalition that won the January 25, 2015 general election in Greece had campaigned on one simple, effective message: once in government they would miraculously abolish austerity, while keeping the country in the euro area. The secret was in “negotiating hard”, in contrast to the treacherous/unpatriotic previous government that had surrendered to foreign lenders so easily.
That task fell naturally to Yanis Varoufakis, the flamboyant economist who had popularized the notion that Greece was as responsible for its current troubles as the state of Ohio had been for the 1929 Great Depression and had convinced Prime Minister Alexis Tsipras that “the markets will dance to the Greek government’s tune”. The new Finance Minister relished the challenge – and took to lecturing fellow finance ministers on economic policy, just as his PM lectured fellow heads of government on democracy, both insisting on European leaders’ duty to respect the verdict of “the people” (i.e. drastically curtail Greece’s debt, and provide the country with more cash, no strings attached).
Unsurprisingly, negotiations were conducted in an atmosphere of mutual incomprehension. European leaders insisted that no country could receive financial assistance except under an “Economic Adjustment Programme”, and demanded figures, performance reports, alternative suggestions. All the Greek side could offer was procrastination: pious pronouncements on the plight of the Greek people, hastily improvised “reform plans”, and a general refusal to engage. In a typical gesture of defiance, the government insisted that European officials could not be admitted in ministry buildings—that was how the previous government did business. Review meetings had to take place in hotel rooms instead.
Argentina during the 2001 corralito was at least self-sufficient in food. Greece in 2010 had to import tomatoes.
Soon patience ran thin. Eastern European leaders pointed out that their countries were actually poorer than Greece, and complained they were unable to explain to their electorates why their salaries and pensions had to be cut so that those of Greeks could be raised. For German Finance Minister Wolfgang Schäuble, the Greek impasse strengthened the case for an ordoliberal Europe, in which no place is reserved for those unwilling or unable to commit to strict fiscal rules. But even those initially sympathetic to Greece, or at any rate determined to keep Europe united, like European Commission President Jean-Claude Juncker or French Finance Minister Michel Sapin, eventually grew exasperated by Varoufakis and his antics. Greece was isolated.
Varoufakis himself remained unflappable. His brinkmanship rested on the assumption that Grexit (as Greece’s exit from the Eurozone became colloquially known) would be costlier for the country’s European partners than for Greece itself.
Dancing to the brink
But that was a miscalculation. A Greek default in 2010, when French and German commercial banks still held the bulk of Greek public debt, would have inflicted serious damage to the European economy. Even so, it hardly followed that the then Greek government could have credibly threatened to default in order to obtain more generous bailout terms: that would have relegated Greece to the status of a pariah state, cut off from the markets, its people facing untold hardship. Argentina during the 2001 corralito was at least self-sufficient in food. Greece in 2010 had to import tomatoes.
In any case, by 2015 policy makers and market analysts agreed that the European economy was strong enough to withstand the fallout from Grexit, even though most still argued that such unpleasant events were best avoided.
It was unlikely that bailing out Greece suited Russia’s interests: in geopolitical terms, Greece was worth more to Russia inside the EU than as an outcast.
Meanwhile, time was running out: the June 30 deadline, when the bailout agreement was due to expire, loomed large. Mario Draghi, President of the European Central Bank (ECB), whose policy initiatives (his 2012 pledge to do “whatever it takes” to save the euro, and his 2015 quantitative easing) had put him at odds with Schäuble and had incensed the Bundesbank, made it clear that his hands were tied. In the absence of a new bailout deal, he was bound by Bank rules to lift the waiver allowing banks to use Greek bonds as collateral to gain access to the ECB’s normal refinancing operations. In a gesture of goodwill, he continued to provide short-term (and more expensive) Emergency Liquidity Assistance.
Flirting with disaster
On June 18, Tsipras flew to St. Petersburg. In his speech, delivered in the presence of Vladimir Putin, the Greek PM brushed aside critics who wondered why he was not in Brussels trying to secure an urgent deal with the country’s European partners, and openly courted his host. “We are at the centre of a storm, but we Greeks are a nation of seafarers: storms do not scare us. We are ready to go to new seas to reach new safe ports”.
Was he seriously suggesting Greece might leave the Eurozone? Or was he bluffing, to get better terms in Brussels? We may never know. It could be that he was not sure either. In any case, cash-starved Russia was hardly in a position to lend Greece the sums it needed to keep afloat. But even if it were, it was unlikely that bailing out Greece suited Russia’s interests: in geopolitical terms, Greece was worth more to Russia inside the EU (e.g. blocking sanctions) than as an outcast.
On June 26, after yet another inconclusive meeting in Brussels, Tsipras called an emergency meeting of his cabinet, at which he announced that he could not accept the deal proposed by the country’s creditors: he had decided to put it to popular vote. The referendum would take place on Sunday July 5.
On June 28, Tsipras went live on TV to announce that his government had decided to introduce capital controls and to close the banks until after the referendum. Savers could withdraw up to €60 per day. Firms were badly hit, exports declined, output plummeted. The timid recovery of 2014 were to prove short-lived: Greece was again in recession.
To the consternation of democracy activists at home and abroad, the referendum fell short of both the Greek constitution and international standards. Council of Europe Secretary General Thorbjørn Jagland protested that the vote had been called on too short a notice, and that the questions put to voters were unclear. In fact, citizens were invited to accept or reject a 34-page agreement plan with two technical appendices.
For a few heady summer days, Greece’s future seemed to hang on the balance. Was Tsipras poised for Grexit, ready to turn the country into a third-world autocracy, a satellite of Putin’s Russia? Many Greek progressives clearly feared so, and mobilized for a “Yes” vote. Theirs was a genuine grassroots movement, spontaneous and leaderless, reclaiming the streets that had for long been monopolised by the Indignados now urging the government to teach Europe a lesson.
Tsipras went on the offensive. The frequency and length of his television addresses, against constitutional guarantees of par condicio, started to resemble Hugo Chavez’s Aló Presidente. In terms of content, they were at once inflammatory (supporters of a “Yes” vote were wittingly or unwittingly doing the bidding of foreign lenders) and reassuring (a “No” vote would not jeopardize Greece’s place in Europe).
Cheering from the sidelines
Observers from afar joined in. Celebrated economists and Nobel laureates Joseph Stiglitz and Paul Krugman urged Greeks to vote “No—on the grounds that uncertainty and dwindling living standards were still preferable to accepting the Europeans’ demand “that the policy regime of the past five years be continued indefinitely” (Krugman), or to the “unconscionable torture of the present” (Stiglitz).
In effect, voters had been asked if they accepted austerity as the price for staying in the Eurozone, or if they’d rather reject austerity but keep the euro all the same. Seen from that angle, what is remarkable is that so many people voted “Yes”.
In Europe, the main supporters of a “No” vote were mostly of a different political persuasion. The xenophobic right, led by Marine Le Pen of France’s Front National, Nigel Farage of UK Independence Party, and Matteo Salvini of Italy’s Lega Nord, all came out in force, cheering the Greeks all the way to Grexit. On their part, mainstream European leaders called for Greeks to vote “Yes” and stay in Europe. Significantly, Germany’s Wolfgang Schäuble failed to join the chorus, his words widely interpreted as providing indirect support for a “No” vote: “We will not leave the Greek people in the lurch”, he told the Bild newspaper on the eve of the referendum (Saturday July 4).
Snatching defeat from the jaws of victory
As it turned out, the referendum was a resounding victory for the “No” vote: 61.3% to 38.7%. A remarkable result, no doubt. Or was it? In effect, voters had been asked if they accepted austerity as the price for staying in the Eurozone, or if they’d rather reject austerity but keep the euro all the same. Seen from that angle, what is remarkable is that so many people voted “Yes”.
Crowds filled the streets, celebrating what they thought was another episode in a long history of rebeliousness in the face of foreign oppression. But in the corridors of power, an altogether different mood prevailed. After six months of brinkmanship, Tsipras now stared into the abyss. Schäuble’s offer of aid, to alleviate the (real) humanitarian crisis about to break out if Greece were to make the transition to a national currency, was the final proof that Varoufakis’s gamble had been ill-judged (to say the least) from the very beginning.
With his cunning plan lying in tatters, Tsipras had a few hours to decide whether he wanted to be remembered as the man who took Greece out of Europe. As even he came to realize, Grexit would be an unmitigated disaster, ending Greece’s ambition to be a normal European country, with all the terrifying implications this would have for Greek democracy amidst economic decline and geopolitical anxiety.
Which is probably why opinion surveys (including the European Union’s own Eurobarometer) showed that support for the Euro remained high in the country. After five long miserable years of EU-imposed austerity, at the height of the mid-summer confrontation, when anti-European propaganda reached a paroxysm, as many as 70% of Greeks consistently said they wanted to keep the euro. That seemed as good a hint as any that ordinary Greeks intuitively understood better than many outsiders that outside Europe the country had little future.
Now there was only one alternative for Tsipras: to make an undignified U-turn and capitulate. And this he duly did. The morning after the referendum (July 6), looking mysteriously glum for someone who had just won a landslide victory at the polls, Alexis Tsipras met the President of the Republic and opposition leaders, following which they all announced that Greece was now ready for a new bailout agreement. On July 13, Tsipras signed the third Economic Adjustment Programme, committing Greece to three more years of austerity and structural reforms.
Settling down to business as usual
While most Greeks, including many who had just voted “No”, breathed a sigh of relief, Syriza activists reacted with shock and disbelief. Some joined the 25 MPs who left to found Popular Unity, a new party openly calling for Greece to leave the EU. Many more simply went home, disenchanted by politics altogether.
At the EU level, in spite of many European leaders’ misgivings about the austerity gospel according to Schäuble, siding with conceited Varoufakis was never an option.
In a shrewd move to preempt the opposition (now including former Syriza stalwarts), Tsipras called for an early general election, scheduled for September 20. European leaders nodded their agreement: they wanted the government to have a fresh mandate. Weary Greeks shook their heads: their politicians, having proved singularly incapable of even tackling the country’s woes, reverted to the one thing they knew well: electioneering.
Tsipras ran a lacklustre campaign, mostly focusing on his own charisma, which seemed wise: after the ignominious demise of “We will end austerity on day one”, the ruling coalition had run out of ideas. Voter turnout reached an all-time low (55% vs. 62% in January). But with a combined share of the vote at 39% (from 41% in January), they were again able to form a government. In the anti-bailout camp, intoxication gave ground to disillusionment.
Tsipras and his faithful, having failed to change Europe, settled down to enjoying the smaller pleasures of office, including the time-honoured practice of handing state jobs to cronies. Ordinary Greeks woke up to higher unemployment and lower incomes than what was on course in 2014. At the EU level, in spite of many European leaders’ misgivings about the austerity gospel according to Schäuble, siding with conceited Varoufakis was never an option. The Greek stand-off had merely served to reaffirm the ordoliberal order.
A longer version of this article has appeared in Current History.
Photo Credits CC: Silla