Greeks will vote in a referendum today to accept or reject the plan made by Greece’s principal creditors – the IMF and the European Union – on June 25th amid a sense of crisis fuelled by cash rationing and burgeoning protests. On the eve of this referendum, Yanis Varoufakis, has accused the country’s creditors of ‘terrorism’. Greece as a nation appears to be divided with the young wanting to say ‘Yes’. And, the old would like to say ‘No’ as it entails a further cut in their pensions and they would be experiencing more austerity along with additional pain that they would need to undergo for the rest of their lives. As such, it would not be an easy decision to make. The present Syriza government, led by Prime Minister Tsipras, has done well to ask people to express their views since it could strengthen its hands in negotiations and also help the parliamentarians to see for themselves what their constituents want.
Negotiations had been going on for months as Greece sought to unlock a frozen 7.2 billion dollars bailout payment and complete a new comprehensive agreement that would include more financing and major debt relief. However, PM Tsipras’ unexpected announcement for a ‘Yes’ or ‘No’ vote from the people, on terms proposed by creditors, which he finds ‘onerous’, resulted in a breakdown of talks.
Over the past 30 years, Europeans have seen vast improvements in their living standards. They talk more about quotas than about killing each other. In 1974 when Greece ended the military rule and restored democracy it simultaneously filed on application to join the European Economic Community (EEC then) and became its 10th member. Its early membership of the EU – which now has 28 countries – belies those who now say Greece was a peripheral member. It certainly was not. Its democratic consolidation alongwith European integration was a role model for Spain and Portugal which had thrown off their autocratic regimes in the 1970s to join the EEC in 1986. After the fall of the Berlin Wall in 1988 almost all the countries in the Soviet bloc replicated the Greek model to become eligible to join the European bloc. The model stipulated conditions of introducing laws conforming to human dignity and democracy, which also meant good governance and secure democracy, for countries aspiring to become members of the European bloc.
However, these two conditions were no pre-conditions for a single currency. Euro needs to have a fiscal and banking union. The US can insulate its seniors, the aged and weak sections of society against a threat to their healthcare which Europe cannot. Leaving a currency union is much harder than entering one. But the situation in Greece has reached a point of no return. Banks are closed. Capital controls are in place. And, a referendum on the terms offered by the creditors is to be voted on. If Greeks vote ‘No’ then Greece would have to rereprint ‘Drachma’ and give up Euro. We may have often heard about Greeks behaving like Pakistanis when it comes to paying taxes. For an over half a decade, Greece has cut governmental employment by 25 percent and pensions (which were luxurious but according to European standards) have been cut drastically. All the austerity measures sought by creditors have yet to create a surplus they had hoped. Why did this not happen? Because the Greek economy shrunk and the government’s revenue target would not materialize. It sounds like our own story. Cutting the fiscal deficits and undertaking massive devaluation to generate more exports are prescriptions stipulated by the IMF. But remember Greece is part of Europe while Pakistan is not. Pakistan’s exports to Europe will be hurt as Euro slides more. But the Europeans will manage. Will we be able to live with the decline in our exports – that is a million dollar question?
Greece has borrowed huge sums from both the IMF and other surplus countries of the western world unlike other African and Asian countries. To conclude, one needs to embrace Nobel laureate economist Paul Krugman’s argument on today’s referendum. Writing for INYT, he argues: “Or to put it a bit differently, it’s reasonable to fear the consequences of a “no” vote, because nobody knows what would come next. But you should be even more afraid of the consequences of a “yes,” because in that case we do know what comes next – more austerity, more disasters and eventually a crisis much worse than anything we’ve seen so far.”
‘There is nothing like a dream to create the future’. – Victor Hugo