I have been following the events about the Greek
referendum for the past week with keen interest. Now, the results are in. Over
61% of voters voted Oxi (no), the
remaining 39% voted Nai (yes). About
65% of those eligible voted in the referendum. So, less than 40%
of the eligible Greek voters actually voted No.
But what exactly did people vote for or against?
It all depends how you define what either Yes or No meant to them. The referendum’s words, I am told, were somewhat
ambiguous.
Let’s examine three reasons folks would vote No:
1.
The terms and
conditions of the bailout proposed by the creditors were too onerous, unjust,
or humiliating. Greece has been under an austerity regime for the past 6 years.
The unemployment rates are off the chart: 27% overall, and almost 60% for those
under 35%. Pensions have been cut, public employees furloughed, and the social
fabric damaged.
2.
Rejecting the
bailout offer sends a message to the creditors that Greeks are fed up with the
prospects of more austerity.
3.
By rejecting the
bailout offer, the government can use the democratic vote to get a better deal,
e.g., debt forgiveness, no interest payment for at least 20 years, and other
concessions.
Now, lets examine three reasons folks would vote Yes:
1.
Accepting the
terms and conditions of the bailout offer would permit Greece to stay in the
Euro zone, and thus avoid a huge devaluation and an inflationary spiral.
2.
Accepting the
terms and conditions of the bailout offer would ensure that Greece remains an
integral part of the European Union.
3.
Voting Yes would
protect current deposits and purchasing power.
Exit polls suggest that the younger voters, those under
45, voted overwhelmingly No, while
those over 45 voted overwhelmingly Yes.
It is safe to assume that the elders have more deposits
to protect. It is also safe to assume that younger voters are fed up with high
unemployment and the precarious prospects for their future.
In total, there are two completely different agendas
in play.
A little history might help …
The economic crisis hit Greece particularly hard six
years ago. Their national debt is the highest in all of Europe: 160% of GNP.
Greece received billions from Brussels, after it
joined the EU in economic aid, in order to bring its infrastructure to EU
standards. Much of this aid was misused. Public employees were able to retire
at age 50-52 at full pay. Public spending exceeded tax revenues. Greeks are
notoriously tax dodgers, critics say. Welfare spending, in particular, became
excessive. As an example, in a small island of 800 souls, 700 receive
disability payment for being blind, when less than 100 are so impaired. By
joining the Euro, Greece’s ability to print Drachmas was gone.
The current accumulated interest is high and the
nation does not produce enough surplus to cover interest payments.
Last January a left-wing government came to power with
the promise that it would negotiate more favorable terms or it would entertain Greece
withdrawing all together from the Euro zone, if creditors did not bend to the
Greek will.
A bombastic finance minister took little or no time to
antagonize creditors by calling them terrorists, lecturing them on macroeconomics
(some more experienced and better educated than him, some point out), and
otherwise behaving like a bully.
The new government called hastily a referendum, in the
name of democracy. If people voted Yes, ministers promised to resign; if people
voted No, ministers would be
emboldened and more able to get a better deal in 48 hours.
The creditor nations are mostly from the richer EU
nations, e.g., Germany, Holland, Luxemburg, etc. Led by Germany, they have been
forcing Greece to adopt a strong medicine. Germans, in particular, resent the
generous benefits Greeks enjoy with their money, they say. They and their Eastern European counterparts loathe the
undisciplined government practices and what they perceive as irresponsible behavior.
Voters from other Southern European nations (Italy, Spain, Cyprus, and
Portugal) support a rescue of the Greek economy.
To put the Greek economy in perspective, it has been
pointed that its size is more or less the same as the economy of Miami and its
suburbs. A pittance by U.S. standards, but the Greek debt is big enough to affect
negatively the financial markets throughout the world.
My Take Aways …
· Countries that spend more than what they receive in
tax revenues ultimately experience a financial disaster.
· The test of whether a social program should be funded
depends on whether such a program can be afforded in good as well bad times.
· Graft, loopholes, and corruption are the thermites that
eat away all well-intended government programs.
· The financial Golden Rule? Those who have the gold
rule. Was the referendum a Pyrrhic victory for Tsipras and his government?
· Is the referendum another Trojan horse? Some folks
remind everyone to “… beware of Greeks bearing gifts.”
What is your view?
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