No Time for Euphemisms

Grexit is an unpleasant word; a clumsy, unmelodious neologism.

Who is to blame for it?

The likely culprits are two economists at Citi, Willem Buiter and Ebrahim Rahbari, who pioneered it in February 2012. As the prospect of a Greek exit from the Eurozone (hence grexit) grew more probable ever since, more economists, as well as politicians, journalists and ordinary people, have succumbed to its use, lacking the imagination or verbal flair to invent some other, more euphonious, word for it.

In a way, though, it is apt, even onomatopoeic; for the reality it describes is likewise an ugly one, which has been brought upon the world by economists, as well as politicians, journalists and ordinary people. Maybe it’s because everyone realizes that this is no time for euphemisms, a sweet-sounding word to pretty up a sordid mess. What is needed is to face reality unflinchingly, and to decide on the most practical, least painful solution for Greece and the rest of Europe.

Who is to blame for the Greek financial crisis itself?

Well, if you ask Greek Prime Minister Alexis Tsipras (actually you don’t have to; he already volunteered the information in a speech on Monday), he’s passing the buck — or, in this case, the euro — to the Eurozone bullies who only want to twist the arms of the hapless Greeks in yet another phase of austerity. Like a medieval torture device designed to extract some ultimate economic truth, but which ends only in destroying the victim.

Some analysts do think that the European Central Bank fatally botched matters by not letting Greece default on its debt at the start of the crisis back in 2010. Instead, the Eurozone countries and the IMF financed an ill-advised bailout, most of which was used to pay off private creditors. The austerity program insisted on by the Eurozone has inflicted four years of recession and a contraction of around 25 percent in the Greek economy, and now they want more. It’s quite understandable that the Greeks are fed up with paying for the mistakes of their leaders.

Some think Tsipras himself blundered by refusing the latest offer by the IMF, ECB and Eurozone governments for more lenient fiscal-surplus targets in exchange for scaled-down pension reforms and other spending cuts. It may be a lousy deal, but it’s the only one in sight.

He has also been faulted for making irresponsible election promises, with nothing to back them up; deluding the people into thinking they could still have a free lunch on the ECB’s credit line.

But then again, the people allowed themselves to be led by Tsipras into this latest crisis, much as they will try to pass the buck/euro back to him if things go really bad. In fact, ordinary Greek taxpayers — or tax evaders — have much to answer for, too. They were fully supportive of the reality denial which enabled their politicians to continue spending without the serious reforms that were needed.

In the meantime, the banks of Greece will be kept shut until after the July 5 referendum, and withdrawals from cash machines will be limited to €60 — about £40. Cash machines were not expected to reopen until later on Monday.

The long lines of account holders anxious to make withdrawals provided ample evidence that they, at least, did not believe Tsipras’s assurance that their money is safe.

Panic has set in, and the global economy is shuddering. In London, shares dropped by 150 points — more than 2 percent on Monday morning. French and German markets were reeling with losses of about 4 percent. European banking shares were suffering losses of up to 10 percent. As far away as Tokyo, the Nikkei index had fallen almost 3 percent, and in Hong Kong shares were down 2.5 percent.

The referendum on the new bailout offer called for by Tsipras and immediately ratified by parliament may decide everything or nothing. For one thing, since the Eurozone negotiators have withdrawn their offer, it’s not even clear what the Greeks will be voting on. For another, even if they vote to turn down the offer, it’s not clear that grexit will necessarily follow. As has been pointed out — another awkward fact in this awkward saga — euro treaties do not recognize any process for a member country’s exit. In other words, grexit is an impossibility.

It’s been suggested that a middle road can be found out of this no-exit dilemma. Not another bailout, but maybe the Eurozone countries could be induced to reinstate the last offer. Or, a wilder notion: that Greece would be allowed to remain in the Eurozone but with strict external controls on its economy, such that the Greek euro will behave unlike the euro elsewhere, but it would still not become a drachma.

This may sound impractical, a fantasy. But the alternatives to compromise are so much worse. Reversion to the drachma would mean a shattering decline in living standards. As The Wall Street Journal put it, “Greeks who owe debt in euros but suddenly earned income in drachmas would be crushed. Another deep recession would be inevitable.”

How this would affect the rest of Europe and the global economy cannot be predicted with any confidence. However, experts say that contingency planning for a Greek meltdown has been ongoing for years. For example, Greece’s debts are now held mainly by governments, the IMF and ECB, which can absorb the damage.

There are no guarantees, of course. The experts have been wrong many times before, and a grexit from the Eurozone could be every bit as unpleasant as it sounds, not only for Greece, but for many others, too.

This article appeared in print on page 10 of the June 30th, 2015 edition of Hamodia.