(FT) — It is not that hard to explain why Alexis Tsipras won the referendum by a landslide. His opponents, both inside Greece and in the European Union went wrong because of serial misjudgments, ranging from the petty to the monumental. For me, three stand out.
The biggest was the clearly concerted intervention by several senior EU politicians, who said that a No vote would lead to Grexit, a Greek exit from the eurozone. One of them was Sigmar Gabriel, the German economics minister and SPD chief. He even doubled up on this threat right after the results came out. The Greeks correctly interpreted these threats as an attempt to interfere in the democratic process of their country. The news last week that eurozone officials tried to suppress the latest debt sustainability analysis of the International Monetary Fund did not help either. The IMF report essentially revealed that the Greek government had been right after all to demand debt relief. The rest of the EU gave the impression that it wanted to rig the referendum, and it did not even bother to conceal this.
If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma
The second error of the Yes campaign was a failure to explain how the bailout programme could work economically. This is not a debate between Keynesian and neoclassical economics, the kind that keeps us endlessly busy on these pages. The Greek referendum united economists with very diverse views of how the world works, including Paul Krugman, Jeffrey Sachs and Hans-Werner Sinn. There is no reputable economic theory according to which an economy that has experienced an eight-year-long depression requires a new round of austerity to bring about economic adjustment.
The third monumental error was arrogance. The Yes supporters thought they had it nailed. Like the British Labour party before the last general election, they had been relying on polls, which turned out to wildly inaccurate. What I found most galling was the argument that Grexit would bring about an economic catastrophe, as though the catastrophe had not already happened. If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma.
Contempt for democracy and economic illiteracy are not merely tactical errors. Those two “qualities” are now the remaining ideological planks of what is left of the European project. Greece is a reminder that the European monetary union, as it is constructed, is fundamentally unsustainable. This means it will need to be fixed, or it will end at some point.
So what are the options now? I will write about this in greater detail in my next column. But the bottom line is that it is going to be more difficult to achieve a deal now. After the No vote on Sunday, the Greek government will now insist on a very different deal with less austerity. It will insist, and be right to do so, on debt relief that is consistent with the IMF’s latest calculations. I find it hard to see a majority in Germany in favour of such a deal. In fact, I believe the only way to coerce Germany into debt relief talks is to start defaulting. This is not going to happen any other way. At that point, however, the possibility of a Grexit is large.
Perhaps the most realistic solution now would be an agreement that only covers the refinancing of the Greek banking system. The Greek government defaults on its creditors, while the creditors stop paying Greece any new money. That would minimise everyone’s commitment, but such an arrangement, too, is fraught with difficulty.
And finally, it is best not to think of Grexit as a choice the Greek government may, or may not, make. It is not a choice anyone will take. Grexit is what happens when all the other possibilities have been exhausted. There are not many left now.
