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Democracy in Greece

Posted by Joseph Trevisani on Jul 6, 2015 3:16:00 PM


afp july 6

Are Europe's leaders angry that Greek Prime Minister Alexis Tsipras resorted to democratic approval for his policies?

Officially German chancellor Angela Merkel said, "We respect the decision of the referendum as a vote of a sovereign democratic state," adding that "time is running out" for new proposals to settle the Greek debt crisis.   

“It will be important tomorrow that the Greek prime minister tells us how this should move forward,” Merkel said after a meeting with French President Francoise Hollande at the Elysee Palace in Paris.  “The last offer that we made was a very generous one. On the other hand, Europe can only stand together, if each nation takes on its own responsibility.”

The complications of reaching an accord in the few days left before Greece is forced to nationalize its banks and print its own currency, a decision that will precipitate it from the euro, have been made that much more fraught by the clear mandate given to Prime Minister Tsipras by the Greek people. 

Mr. Tsipras has said he wants to end austerity and keep Greece in the euro. But those decisions are not his and the wishes of his people may not matter.

In the conflict between the desires of the Greeks to end austerity and enforce their sovereignty and European money, it is the creditors who decide. Greece can have its sovereignty only at the expense of European assistance. 

As a practical political matter Mr. Tsipras can only make proposals to his European partners. It is his partners who decide.

If his terms are rejected, and Ms Merkel seemed to indicate that the creditor’s demands are largely unchanged, then the current political standoff continues. 

But as a practical financial matter the standoff cannot continue. A modern country does not function without a financial system.

Greek banks cannot open because they do not have the cash to give to their customers when they come to empty their balances. Without additional ELA funds from the ECB Greece's financial system is immediately forfeit and shortly thereafter its economy follows.

Soon there will be shortages of the commodities of everyday life. There will be no gasoline as refineries will not be able to pay for imported oil, empty shelves in markets as bakeries cannot buy flour. How long will civil calm maintain, and Mr. Tsipras keep power if Greece descends to something like economic anarchy? 

The only remaining choice for Mr. Tsipras and Greece if his proposals are denied by Europe will be to recapitalize the banks with depositor’s money, print a new currency, endure the poverty that devaluation will bring and start to rebuild their economy.

Until the referendum markets saw the dispute between Greece and her creditors as brinksmanship that, however acrimonious, would end in an agreement to keep the euro status quo intact. 

In emboldening their leader to seek their and his preferred solution, the Greeks people may have placed that end out of reach.


Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading




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