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The landslide “No” vote of the Greek people to reject further austerity marks a turning point in a battle over the future of Europe that has been going on since the world financial crisis and recession. Of course the European authorities (which include the European Central Bank, the European Commission, the IMF, and the eurogroup of finance ministers) still have the power to wreck the Greek financial system and economy, and force Greece out of the euro. But this is something that they do not want to do, and that Washington (which has influence in European capitals) does not want them to do either.
As a result of this dilemma for the creditors, they have opted for a strategy of regime change, which they have pursued since shortly after the Syriza government was elected. In the run-up to the referendum, they deployed their most destructive weapon in this war to topple the elected government: For the first time in six years of austerity-prolonged depression, the European Central Bank (ECB) forced a closure of Greek banks. This was a deliberate decision made on Sunday, June 28, and combined with the statements of European officials, it was clear that the purpose of this move was to intimidate Greek voters into voting “Yes,” i.e., to accept the creditors’ last offer.
By voting “No” with a large margin (61-39 percent), Greek voters demonstrated several important things. First, that they were not easily intimidated. Second, that despite a massive propaganda campaign by what the New York Times described as “the oligarch-dominated news organizations,” they were not easily fooled, either: they knew who was to blame for their suffering in the run-up to the vote. Third, they understood who was responsible for the never-ending depression, and that the European authorities were not offering a way out of it. The European authorities had severely underestimated Greek national pride and solidarity, and the Greek people’s understanding of basic economics.
With no sense of irony, the creditors are now trying to blame the Greek government for the serious damage to the Greek economy caused by the ECB’s forced closure of the banking system. But this is a continuation of what the European authorities have been doing for more than five years. The reason that the Greeks need so much debt relief is because the European authorities have shrunk the economy by more than 25 percent and drastically reduced Greece’s ability to pay. Now that the European authorities – not the Greek government – have pushed the economy back into recession, it will make Greece’s debt situation even worse. The IMF just published a paper showing that the Greek debt is not sustainable, yet the European authorities have refused to discuss debt relief.
The European authorities are demanding more pension cuts and regressive tax increases, as well as primary (excluding interest) budget surpluses that would make it difficult, if not impossible, for the Greek economy to have a recovery any time soon that would be strong enough to make a serious dent in Greece’s 26 percent unemployment rate. In short, they are not offering Greeks any light at the end of a long tunnel. This is more evidence, if any were needed, that they are not bargaining in good faith.
The Greek government is in a tough spot. Since they are committed to remaining within the eurozone, their only option is to change Europe. But the eurozone officials have their own vision for a new Europe, and it is one with less of a social safety net, and with lower pensions, less spending on health care, weaker unions, and a smaller welfare state. Hence the collision: Greece is an obstacle on their path to a New Europe. But it is proving to be a stubborn one.
Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C. and president of Just Foreign Policy. He is also the author of the forthcoming book “Failed: What the ‘Experts’ Got Wrong about the Global Economy.“