Greece has voted “no”. The word is “oxi”, pronounced something like “ohee” in phonetic English, but with a little bit stuck in your throat on the “h” as if you are spitting on the European Central Bank (ECB).
It may well be that this deal had to be rejected and Greece has to essentially go over the cliff to be able to really stand on its feet one day. It may be that the ECB deserves to be spat on, and for that matter perhaps all banks have it coming to them.
But banks today are what we have to watch – in Greece and all around the world. The proud Hellenic people may be about to find out what a world without banks is like as theirs are at the very least going to remain closed for a while longer. Life is going to become increasingly more difficult for everyone.
But this is hardly the first time Greece stood up and said “no” to the great powers of the world.
It’s worth noting once again that there is no automatic ejection from the Euro if a deal isn’t made by any one of a number of deadlines in the past or the future. Indeed, there is no mechanism for telling Greece as a nation that no, you cannot use the Euro. Being “kicked out” isn’t really an option.
What this comes down to is the proud nation has rallied around PM Tsipras and his Syriza Party and given him the backing he need to take this as far as he can. So far he seems to be working under the belief that “If you owe the bank a thousand dollars you have a problem but if you owe the bank a billion dollars the bank has a problem.”
So far, however, the ECB has once again shown that it is made of marble and simply has not blinked.
Why can’t Greece take the terms that they have been offered so far? Because Greek debt, like that of many nations, is so large that it cannot be simply paid off in a conventional way. The taxes necessary to meed ordinary service of the bonds will no doubt cripple the economy without a draconian reduction in services.
They can’t tax their way out, they can’t cut their way out, and they can’t grow their way out. It’s going to take a combination of all three – and a substantial amount of debt forgiveness in a jubilee.
The only way that Greece can possibly force this to happen is to make the current bondholders honestly believe that they are looking at a net value for their Greek sovereign debt of zero before they accept that pennies on the Euro is actually a good deal.
Tspiras could take this all the way to the wall except for one thing – people withdrawing their money from banks and reducing their reserves to the point where the banks are in danger of failing as well. In order to prevent such a failure, the banks have been closed and will now likely remain closed until a deal can be struck.
What Tsipras needed from the Greek people was patience – the time necessary to push this problem right over the cliff. The huge “no” – 61% – has given him some of that as the people of Greece experience living in a world without modern banking for just a little while longer. It may be something they need to get used to for the long haul if the ECB still doesn’t blink.
Meanwhile, stock markets around the world are ready to tumble. That’s not as much about the failure of Greece or even Europe as it is the sudden realization that equities have a lot more downside risk than has been though during the long run-up since 2010. This “bull” market is really buried inside a secular “bear” market that still hasn’t quite topped the pre-depression heights of 1999 in real (inflation adjusted) terms.
But we may have to go back a little further to find the right analogy. After all, “civilized” people learned to speak Greek 2,500 years ago after the collection of stubborn city states stood on their feet and said “No” to Darius of Persia. It seemed rather incredible at the time, but Greece found a way to survive outside the great empire that controlled what was then the civilized world.
History doesn’t repeat itself, but it sure does rhyme. We’ll all have to learn a little more Greek before we know just what rhymes with “oxi”.