Yesterday Greece said “no” to the EU in an election in which “yes” was not an option and the world treats the vote as news. It is not news. It is “olds” as it is long since past the time that there was ever any hope of Greece regaining solvency and paying its debts.
Now we have the spectacle of both sides yelling past each other. Thomas Piketty takes the Hellenic side that Germany should forgive Greece’s debt while Stephen Moore says that Greece should just declare bankruptcy. Bankruptcy is debt relief. Whatever you call it, the creditor isn’t getting all of his money back. But neither is the debtor going to get any further infusions of cash.
So let’s look past all the hyperventilation and see where all this is likely to lead:
1. Greece is euphoric today about yesterday’s vote, but soon Greece is going to find what real austerity looks like. What it called austerity before was really just not getting as much free money as it wanted. Now it will get none. Greece basically is the adult child without a job who rebels against his German parents, even as the child is totally reliant on an allowance. Yelling, “You can’t tell me what to do!” may have felt good yesterday, but without access to the parents’ trust fund, they don’t have anything else to live on.
2. Greece can’t leave the Euro. Sure it can exit the Eurozone and go back to printing the drachma, but its past debts and future purchases are not denominated in drachmas. Gasoline is not sold in drachmas. Neither is natural gas, iron, timber, or anything else. Aside from some agricultural products, Greeks must import most everything they need and pay for it in a currency not of their own creation. This is why the “let’s just devalue” crowd is always wrong about devaluation being a path to plenty. If it were, Argentina would be a booming paradise. (Foreboding warning to Greece: Argentina has a lot more natural resources than does Greece.)
3. Socialism doesn’t die until it kills off everything else first. Fresh off its “victory” the Tsirpas government will not bow to realists in his own country and instead will steal everything they can from Greece’s upper class. The result will be a flight of capital and talent until there is none left. So while ultimately it didn’t matter how Greece voted yesterday, the resounding “no” vote was the worst possible outcome since it emboldens Syriza, a party whose platform apparently is to oppose math.
4. The EU is stronger without Greece. This is true not necessarily because Europe would be without the dead weight of Greece, but because Greece’s exit will be a cautionary tale to the other PIGS. When the reality sets in about how desperately out of money Greece is, when the country no longer has cheap credit available to it, when devaluation after devaluation takes its toll on the country, none of the remainder of the EU will soon seek a similar fate. Greece is about to find that it is the bum on the street corner holding the “will work for food” sign. (And just like the real bum on the corner, by “work” it doesn’t mean actual work until it has ran out of every other option.)
5. There will be no rush of new EU members. Countries on the fence about joining the common currency will see from Greece’s plight that it is much more difficult to unwind from the euro than it is to never join it in the first place. And Europe has seen that it better be careful about whom it lets into its club. Croatia, the Czech Republic, and Poland may soon become strong enough to become full fledged members of the Eurozone, but will Europe want them? Britain and Sweden already are strong enough, but neither is silly enough to want it. Bosnia, Bulgaria, Kosovo, and Montenegro are in even worse shape than Greece. And Hungary and Romania, in addition to having economic difficulties, are beset with internal political problems–which goes without saying since internal political problems always have an adverse economic effect. In other words, the EU is about as big as it is ever going to get.
6. Relations between Germany and Greece aren’t nearly as bad now as they are going to get. Starved for hard currency, Greeks, who already hate Germany, now will have to get used to being subservient to individual German tourists who are drawn there for cheap vacations while they feast inexpensively on delights that the Greeks themselves no longer can afford. Meanwhile, the Germans are about to have even more reason to be mad at the Greeks when Athens refuses to reimburse Germany for its 2010 and 2012 bailouts that most rank-and-file German never supported in the first place. Ironically, relations between the two countries would have been much better had Germans never bailed them out five years ago.