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The Odyssey of Oxi

July 9, 2015

By Spencer Bradley

“We’re not gonna take it,” the popular words of Twisted Sister capture the feelings of the Greek people after Sunday’s popular referendum to decide debt payment policy. Had the Greek people voted to continue dealing with the IMF and the Eurozone, the technocrats in Germany and France would have worked towards removing the Syriza government, and implementing harsher austerity packages. The middle class and bourgeoisie, fearing collapse or systemic alterations, advocated for surrender to the IMF and the European Union. Yet, in a show of popular democracy, 61% of Greeks said “Oxi”; they said “No”. Rather than capitulating, or imposing further austerity measures that have already proven to be ineffective, the Greek people are willing to deal with rationing, destabilization of global financial markets, and a barter economy which will more than likely lead to the return of the Drachma. The Greek infrastructure will require drastic reorganization and life will be more difficult. Though this is a win for democracy, the Greek decision may prove influential to other countries “weighing their options” against the Euro.

Despite the wishes of Germany and the IMF, the Greek people have decided to stop forming policy around austerity. Austerity is the economic concept that “tightens the spending” of the government to pay off debt when it is high. Unfortunately, the economic principle fails by its own composition. While austerity is good for the individual, the actual costs of austerity are found in the way it inhibits growth. Shrinking of the economy causes growth to slow. When growth slows, countries are unable to repay their debts. As Paul Krugman notes, the shrunken economy can never repay its debt under such economic policies, perpetuating the cycle of debt and suffering. It should also be taken into account that the Greek people are footing the bill for irresponsible lenders to the Greek government. “The private lenders on one end of the public debt transaction were fully bailed out back in 2012 while the public Greek borrower remained on the hook — but now to public rather than private bodies. More than 90 percent of the bailout funds Greece has received from the troika have gone to repay lenders rather than restart the Greek economy”. The praxis of austerity has failed to reboot the Greek economy and other European powers who sit riddled with debt. The IMF, European Central Bank, and the European Commission cannot expect the Greek economy to restart, despite the bailout efforts, when a majority of their funds have been used to fulfill the obligations of creditors. We have seen time and time again that austerity only leads to more problems. For example, the Great Depression was improving until Roosevelt cut government spending by 17%, leading to a recession and further prolonging the Great Depression. As such, the Greek decision is not flying in the face of conventional wisdom, but serves as a national dictate against outside influence and self-constituted autonomy. This reveals a kernel of truth in the EU, not all states are equal, and German hegemony dictates terms to other nations.

The popular decision goes against the desires of Frankfurt, Berlin, Paris, and Wall Street. The “No” referendum carries with it the potential for a “Grexit” from the Eurozone. This would require an extreme amount of work to, “implement a new payments system, to reprogram a modern financial infrastructure, to reestablish financial links with Europe and the rest of the world, and regain access to international markets. In the meantime, food, fuel, and medicine would need to be rationed.” Though this image brings to mind old Soviet breadlines, the interesting point is that the people have spoken. The preferred option to austerity is suffering from the belly. The IMF has stated that the Greek economy would have to reach a level of growth of 4% per year while putting 15% of its GDP towards debt repayment, an unattainable goal when austerity is already shrinking the economy. The Greek people have chosen a different path outside of global financial norms. Whether or not one agrees with the decision and its subsequent implications, one must respect the democratic character of the decision. The people, not technocrats, business, or political elites either from the inside or outside, decided by a majority to cease playing by the Troikia’s demands. This precedent could lead to additional exits from the EU, as Ireland and Spain, both owing large amounts of debt, are sympathetic to the Greek plight. A Greek exit could inspire the now far-left Spanish government to seek exit as well.

Finally, the question comes to whether or not a Greek default would affect the United States. Global markets have dropped slightly, but investors in the U.S. and Asia are confident that the Central Bank will step in. This reveals an interesting power the debtor nations hold. They possess the power to fight back because the costs of letting them go are too great. President Obama has made it clear he has no interest in joining Germany and France in squeezing the Greeks, stating that we “cannot keep on squeezing countries that are in the midst of depression.” The Treasury Department has refrained from further comment and instead passed the buck to the ECB. “The [European Central Bank’s] vast array of tools, the euro area firewall, the European stability mechanism, the single supervisory mechanism, which is of particular help to the banking sector – these are all tools that could be deployed if it’s warranted by conditions in Greece,” a senior Treasury official said this week.” The U.S. will likely watch this play out in Europe, as it is a European economic issue. Tuesday saw a sympathetic Obama administration, but hardliners such as Lithuania and France will not endorse a deal that does not either punish Greece or weaken German hegemony. An acceptable deal would be one that implements a policy standard which other Eurozone members may engage in to forgive their debts.

What does this mean to the U.S.? To employ realistic observation, the U.S. would benefit from a weaker Euro which would strengthen the dollar. In regards to the 2016 election, Bernie Sanders has expressed solidarity with the Greeks, citing the IMF as a contributor to the debt crisis. These feelings echo those of Americans in 2008, when the bail out saved Wall-Street and GM. Greece is an experiment in the way finance and democracy clash; what has happened here, one ought to be reminded, is very similar to our own revolution over our “financial freedom”. If taxation without representation is an American value, then we cannot show judgment on the Greeks when they are being forced to pay debts to the formerly corrupt governments and financial markets that made the loans in the first place. Greece is not entirely blameless, but the response to the crisis is purely reactive, not indicative of an abandonment of responsibility.

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