The stock market is getting walloped today and the reason is grave: Greece, dogged by enormous debt and an anemic economy, may be about to walk away from its German creditors.
Greek Prime Minister Alexis Tsipras has called for a referendum over the latest concessions demanded by Germany and the Troika of global banking institutions. Votes will be cast on Sunday and Tsipras is actively campaigning against Greek cooperation. Four days earlier comes Tuesday, which is the deadline for Greece forking over an additional 1.6 billion euros to the International Monetary Fund. It’s now unknown whether Tsipras intends to default.
What is known is that the uncertainty is causing Greeks to party like it’s 1930. NBC News reports:
Greece imposed restrictions on money withdrawals and banking transactions to keep its financial system from collapsing due to a run on the banks.
Anxious Greeks rushed to ATMs to withdraw cash after Prime Minister Alexis Tsipras called late Friday for a referendum on the creditors’ reform proposals. …
Meanwhile, retirees lined up just after dawn at bank branches hoping they would be able to receive their pensions, which were due to be paid Monday. The finance ministry said the manner in which pensions would be disbursed would be announced later in the afternoon.
The president of the European Commission has declared that Greece’s departure from the euro is not an option, but even the most impenetrable of Eurocrats must comprehend that their little science project is falling apart. This weekend’s referendum isn’t just about the current bailout package; a “no” vote will effectively jettison Greece from the euro and resurrect their old drachma currency. A “Grexit,” the prospect of which has long triggered dramatic sting music in the minds of European financial ministers, is looming over the Continent.
And why not? The referendum is likely a leverage tactic by Tsipras—who’s resorted to such risibly desperate measures in the past as calling on Germany to pay Greece Nazi war reparations—but it intersects with one of the seminal themes of his election campaign last year: giving the Greek people a choice. Why should Athens, fuzzily remembered as the “birthplace of democracy,” have its finances determined in the back room of a foreign accounting office?
Those finances were wrecked in the first place by the Greeks and can only be fixed by the Greeks. A befuddled Jean-Claude Juncker, head of the European Commission, said today that Tsipras’ hardball negotiating tactics were “not worthy of the great Greek nation.” He’s thinking too much of Menelaus and not enough of Marx. Thanks to Greece’s socialist policies, its economy has long been creaking under the weight of crushing debt. It only endured in the debt-averse European Union because, with the help of Wall Street honchos like Goldman Sachs, it cunningly concealed its red ink for over a decade.
That debt is often attributed to the fact that “Greeks don’t pay their taxes,” which has now reached near-aphorism status among economic writers. But rarely does anyone explore the reasons for all this tax dodging. As Nathan Lewis has observed, “Greece’s 45% payroll tax rate, plus its 23% VAT rate, plus a personal income tax system with a top rate of 46% (and the 32% rate hitting at only 26,000 euros of income), makes business activity basically impossible … unless you evade the taxes.” Recent “austerity” measures imposed by Europe have only added to the burden.
Those taxes, along with regulations and iron-fisted labor unions, have pulverized Greece’s private sector. The Germans, being the Germans, figured early on that they could help fix Greece with some old-fashioned efficiency, and recommended a suite of reforms to make the Greek economy more competitive. The Greeks, being the Greeks, reacted like were being counseled by extraterrestrials—their planners were unable to conceive of, let alone implement, much of the German plan.
What is that other than a synecdoche for the entire failed European Union experiment? Nations with different histories and different interests can’t be expected to step in time to the same political and monetary music, especially when it’s being played by distant European suits. Greece’s woes are as much cultural as they are economic, and Germany can no more reengineer Greek culture than America was able to reengineer Iraqi culture.
A Grexit would sledgehammer Greece’s economy and devalue the newly returned drachma. If polls in advance of Sunday’s referendum are any indication, despite Tsipras’ exhortations, exhausted Greeks may not be willing to take that risk. But what other course is there? How else can Greece survive in the long term except by freeing itself to change from within?