The end of Europe as we know it: Why Greece is poised to change everything this weekend

Greece will cast its most important vote in a generation on Sunday: Euro or Drachma. In or out.

Published June 30, 2015 9:58AM (EDT)

Anti-austerity protesters burn a euro note during a demonstration outside the European Union (EU) offices in Athens, Greece June 28, 2015.     (Reuters/Alkis Konstantinidis)
Anti-austerity protesters burn a euro note during a demonstration outside the European Union (EU) offices in Athens, Greece June 28, 2015. (Reuters/Alkis Konstantinidis)

Every campaign season, self-interested politicians tell Americans that we face “the most important election of our lifetimes.” Only rarely is that literally true, but Sunday’s snap referendum in Greece certainly qualifies. The question before voters, whether to accept a deal that creditors have already taken off the table, is less about text than subtext: This is a vote on the future of the European monetary union, and whether elites will be allowed to continue their reign of bullying and immiseration. In this sense, the Greek people are taking a proxy vote for the rest of the continent.

Last week, I explained how Greece got to this point: The country has lived with crisis and depression for five years, without an end under the current arrangement, where they don’t control their own monetary policy. Since that time, Greece’s creditors decided they would dictate not only the breadth of austerity, but the precise terms.

The creditors literally marked up Syriza’s bailout proposal with a red pen like they were grading a test, crossing out higher taxes on the wealthy and adding in more cuts to public pensions. The competing proposals aren’t that far off in terms of final numbers, but the markup indicated that creditors believe the democratically elected leadership of Greece should no longer be allowed to govern, as a warning to other anti-austerity parties that they will be similarly crushed.

That’s when ruling party Syriza played its last card, calling for a public referendum on the counter-proposal. The vote is scheduled for Sunday; but the current bailout program ends today, when a 1.55 billion euro payment is due to the IMF. Eurozone leaders refused to extend the bailout beyond the vote, meaning Greece will default. The European Central Bank responded by announcing they would freeze support for the Greek banking system, which it required to survive. Greece closed its banks for the entire week, and instituted a system of capital controls; citizens can only take out 60 euro from ATMs at a time, a bid to prevent deposits from surging out of the banks. That’s already happened to a large extent; lines at bank machines and gas stations grew over the weekend.

The vote no longer means what it says on the ballot: The creditors have withdrawn their counter-proposal. Yet European Commission President Jean-Claude Juncker and practically every national leader on the continent have urged a yes vote, casting it as a decision on whether or not to stay in the euro or choose a different currency. A no vote “will mean that Greece is saying ‘no’ to Europe,” Juncker said.

This bracing honesty has been necessary in Greece, and really throughout Europe, for a long time. The Greek public exhibits an internal contradiction: against more austerity, but in favor of the euro, and the institutions that make austerity a forced mandate. They take pride in being part of the broader European political project and fear the unknown, but they loathe the idea of continuing to suffer for the sins of the past (indeed, the sins of Goldman Sachs). Something must break this knot and give the governing process legitimacy. The referendum finally offers the Greek public a real choice, not a fantasy of unavailable options.

Euro or drachma. In or out.

I put myself firmly on Team Drachma. Nobody should sugarcoat the consequences of that decision: it will be a difficult slog, with slashed incomes, nationalized banks and potentially more austerity in the near term. But as Paul Krugman describes, Greek creditors are responsible for collapsing its economy since the global financial crisis, and they want to continue to do so in perpetuity, regardless of who suffers. A country at 25 percent unemployment for three years shouldn’t worry too deeply that the great unknown will lead to chaos; they’re already most of the way there. Re-instituting the drachma will finally allow Greece to properly value its currency, hopefully attracting buyers for its exports. It may initially look terrible – there’s no sunny scenario here – but the status quo offers no hope at all, and over the long term, the country can rebuild.

Syriza didn’t seek this outcome – they ran on staying in the euro. You can call the referendum “an exercise in democracy theater,” and you may be right. But events have turned that exercise into reality. Syriza may be looking for political cover, but they’re getting an endgame. If they win the election, they must rebuild the country from scratch. If they lose, they leave the government.

Given that Greece leads the world throughout history in debt defaults, and has an economy roughly the size of the city of Atlanta, you might conclude that a separation from the Eurozone could work out well for everyone, and isn’t a big deal. The EU is more prepared these days to prevent contagion from the Grexit, and will be relieved to rid themselves of a country they see as a pest. Greece can finally embark on their future, with hardship ahead but at least a sense of freedom.

But if that’s the case, why are the European leaders pushing for a Yes vote? Simple: They want to stifle anything that gives oxygen to Eurozone citizens. Elites created the common currency on the theory that stronger integration would save the continent after two world wars. But it was set up to mainly benefit the strongest nation, Germany, who effectively sets the euro’s value and reaps the rewards. The weak integration didn’t include the necessary fiscal transfer policies, to prevent the vicious cycles Greece has encountered. Thus, the institutions have “criminal responsibility” for creating this mess, Nobel-winning economist Joseph Stiglitz has said.

That’s because the Eurozone nations don’t want to really stick together. The northern countries (read Germany) don’t want to pay for whom they regard as lazy, profligate southern countries; conversely, the southern countries don’t want to take dictation on their national policies. So the wars never really ended, they just transferred to the economic sphere, substituting bombs with bonds.

A No vote, therefore, reveals to European citizens an escape hatch, a way out of a terribly misbegotten currency union. The euro would no longer be irreversible. Maybe elites will try to make the aftermath so painful for Greece that nobody else would follow their path. But they seemingly don’t want to risk the possibility. When one Eurozone member, no matter how small, ends the stranglehold the institutional leadership has in setting their absurdly misguided policies, it sends a beacon to the rest of the continent, indeed the rest of the world, that a consensus which doesn’t work for ordinary people can be abandoned.

Best of all, the people can strike this blow with their ballots. The days of technocrats inserting their judgment for diverse groups of citizens can end. But only if Greece, standing in for their global compatriots, chooses hope over fear.

By David Dayen

David Dayen is a journalist who writes about economics and finance. He is the author of "Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud," winner of the Studs and Ida Terkel Prize, and coauthor of the book "Fat Cat: The Steve Mnuchin Story." He is an investigative fellow with In These Times and contributes to the Intercept, the New Republic and the Los Angeles Times. His work has also appeared in the Nation, the American Prospect, Vice, the Huffington Post and more. He has been a guest on MSNBC, CNN, Bloomberg, Al Jazeera, CNBC, NPR and Pacifica Radio. He lives in Los Angeles.

MORE FROM David Dayen

Related Topics ------------------------------------------

Economics Europe European Union Eurozone Germany Greece The Economy