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Tsipras’ temporary triumph

Tsipras’ temporary triumph

Punishment ahead for debtors and creditors

by David Marsh

Mon 6 Jul 2015

Never in the field of economic conflict has so much been owed to so many by so few. The warring over Greece’s future has been a debtor v. creditor battle. So far the Greeks seem to be winning. In achieving a decisive 61%-39% No vote in yesterday’s referendum, Alexis Tsipras, the Greek prime minister, has implemented the credo attributed to his forebear Philip of Macedon, father of Alexander the Great: divide et impera. 

The failure of the creditor countries, led by Germany and the Netherlands, to recognise a central maxim of guerrilla fighting – the enemy will always surprise – provides a key reason for the Oxi win. If you’re outnumbered, practise the unorthodox. Tearing up the rules of Brussels conduct, Tspiras and Yanis Varoufakis, his finance minister-cum-field marshal, have outmanoeuvred and divided the surplus states by constantly re-engaging, over five months, from unexpected, demanding and outrageous battle positions.

The fruits of victory will turn sour. Varoufakis' decision to resign from the finance ministry – saying he will 'wear the creditors' loathing with pride' – seems sensible. Creditors and debtors alike will be punished. Greece faces a wrenching period of infighting and pain, during which devaluation-stamped banknotes, rationing of high street goods and exchange controls enforced by armed police will be only the least of the ills.

The euro states must confront contagion and schism in their ranks, both political and economic.

The Syriza partisans arrived in power in January on the horns of an impossible trilemma. They wanted simultaneously to end austerity, gain debt relief and remain in the euro. The chances are that the Greeks will say goodbye to the single currency. They lack the means to stay. If they are forced out, the Athenians will go neither quietly nor with good grace. They will threaten to bring the edifice crashing down around them.

For the moment, the No vote gives the Greek government authority and momentum to fight the next stage. Adding to Tsipras’ temporary sense of triumph, the creditor states themselves administered the coup de grace.

All along, the Greeks have mercilessly exposed fault-lines in the creditor ranks. The IMF official who haplessly briefed journalists on 2 July that Greece (as the Athens government and many other observers had been saying all along) needed massive debt relief – and, by the way, would the Europeans kindly foot the bill? – handed Tsipras and Varoufakis a propaganda coup. The IMF guillotined itself. Christine Lagarde, its hyperactive managing director, should have stayed in Washington masterminding operations rather than uselessly and visibly trailblazing around Europe.

Another Syriza helper turned out to be Wolfgang Schäuble, the German finance minister, who, I have always suspected, is far too intelligent and worldly-wise to be taken in by his own rhetoric. He conceded on the eve of the referendum that, whatever happened, the rest of Europe would have to continue Greek financing – thus removing the fear of creditor cruelty that would have been the main motivation for a Yes.

Schäuble’s admission was a mark of humanity and honesty. Clausewitzian it was not.

No doubt Tsipras will spring more surprises. Euro negotiators will have cause to remember what Mario Draghi, European Central Bank president, said in Helsinki on 27 November last year: ‘[Euro] members have to be better off inside than they would be outside. …If there are parts of the euro area that are worse off inside the union, doubts may grow about whether they might ultimately have to leave. And if one country can potentially leave the monetary union, then this creates a replicable precedent for all countries.’

If Greece leaves, some of the euro magic that Draghi has sustained with so much creativity will wear off. It is difficult to imagine that Europe will display the thoroughgoing solidarity – open-ended ECB bond purchases, across-the-board bank guarantees, and so on – needed to nullify fears of contagion. Hard to believe, too, that the ECB can continue to keep the moribund Greek banking system indefinitely alive.

The Duke of Wellington reflected 200 years ago that nothing except a battle lost can be half as melancholy as a battle won. A parable for the euro, a line from T.S. Eliot’s Murder in the Cathedral, comes to mind: ‘For every evil, every sacrilege, crime, wrong, oppression and the axe's edge, indifference, exploitation – you, and you, and you, must all be punished.’ As the smoke rises from the field of battle, the euro area will not be a peaceful place.

David Marsh is Managing Director of OMFIF.

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