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Martin Wolf: «Una scelta difficile per i greci» (ENG)

di Martin Wolf

The difficult choices facing the Greeks di Martin Wolf

How would I vote in the referendum on the eurozone’s economic programme if I were Greek? The answer, alas, is that I am unsure. If I believed Greece could make a success of going it alone, I would surely vote against the programme. But I could not be certain: if Greece could use monetary sovereignty wisely, it would not be in its current state. If I voted in favour of the programme, I would not know whether it was still on offer: the eurozone says it is not, but it might be bluffing. What I would know is that, if Greece voted Yes, it might face years of retrenchment and depression. But that might still be better than post-exit chaos.

I would also surely wonder whether there might be middle ground. Thus some argue that it would be possible to stay inside the eurozone even if the government were in default. This might also justify a No vote.

In making my decision, I would bemoan both the idiotic leftism of my own government and the self-righteousness of the rest of the eurozone. Nobody comes out of this saga with credit.

The Syriza government has failed to put forward a credible programme of reform that might solve the multiple problems of the Greek economy and polity. It has instead made populist gestures. It is, in brief, a dreadful government produced by desperate times.

Yet the eurozone, too, deserves substantial blame for the outcome. One would never guess from its rhetoric that Germany was a serial defaulter in the 20th century. Moreover, there is no democracy, including the UK, whose politics would survive such a huge depression unscathed. Remember, when Germany last suffered a depression of this magnitude, Hitler came to power. Yes, Syriza is the outcome of infantile and irresponsible Greek politics. But it is also the result of blunders committed by the creditors since 2010 and, above all, insistence on bailing out Greece’s foolish private creditors at the expense of the Greek people.

Yet all these mistakes are now sunk costs. Greeks must look to the future.

Even this perspective does not help as much as one would like. The bailout extension did not offer a plausible exit into recovery: it left too big a debt overhang and, more important, demanded too much short-term austerity. Given the recent backsliding, it seems to demand a move from a primary fiscal balance (before interest) of close to zero this year to a surplus of 3.5 per cent of gross domestic product by 2018. Achieving this outcome might demand fiscal measures that would raise the equivalent of 7 per cent of GDP and shrink the economy by 10 per cent.

One does not put an overweight patient on a starvation diet just after a heart attack. Greece needs growth. Indeed, the economic collapse explains why its public debt has exploded relative to GDP. The programme should have eliminated further austerity until growth was established, focused on growth-promoting reforms, and promised debt relief on completion. If the programme on offer was so bad, should I risk voting No? In deciding that I would need to think through what would happen. The short-term position would be clear. The European Central Bank has curtailed emergency support for the Greek banks, forcing tight limits on withdrawals. Some argue this is a huge error. Others believe it is an incentive for voters to vote Yes.

If the Greeks voted Yes, the curtailing of ECB support might be reversed. But it is hard to imagine a successful revival of the eurozone’s programme if the present government were still in charge. After campaigning for a No, the latter would surely have lost all the confidence of the creditors. So a new government would have to emerge. It would then also have to sign on the dotted line.

A Yes vote then would offer an unpleasant and uncertain, but at least imaginable future. Now imagine a No vote. There would then be two conceivable outcomes. One would be a true exit. The Greek government would introduce a new currency and convert all contracts under Greek law into it. The new currency would surely then collapse in value relative to the euro. How much it would fall would depend on the policies and institutions (particularly the governance of the central bank) established by the government.

One might reasonably fear the worst. Some even argue that Greece would remain “euroised”. If so, the collapse in the external value of the new currency might offer little gain in competitiveness. Personally, I would be more optimistic: the improvements in competitiveness might well be large.

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The second outcome would be to stay in the eurozone, despite an insolvent government. This is logically possible. The banking system could be recapitalised by converting uninsured bank liabilities into equity. This looks technically feasible. But it would impose a large negative shock on private wealth.

Whether the ECB would then restart emergency lending and on what scale would become the big questions. This looks an unattractive option to me: it would present all the problems of being part of a currency union, with the additional disadvantages of a comprehensive government default. Better than that surely would be to vote Yes.

So I, as a Greek voter, face a choice between the devil and the deep blue sea. The devil is familiar: the never-ending demands of the eurozone for further austerity against which my people voted in the last general election. The deep blue sea is sovereign default and monetary sovereignty. If I am Prime Minister Alexis Tsipras, I think there is a third way — endless bailouts and few conditions. But I am sure he is deluded. So which would I choose? Being cautious I would be tempted to stick with the devil I know. but I might well do better to risk the sea.