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The conventional wisdom, delivered before anyone could really ponder the fine print of the Greek debt deal, is that Tsipras surrendered to the creditors in a humiliating defeat. His referendum and prior tenacity in negotiations proved futile,according to the predominant account that has emerged in the media and the twitter and blog worlds.
Wrong on all counts. And here's why.
It is well-understood that Greece's debt is un-repayable under any plausible economic scenario. But this is the reality that many European politicians cannot admit candidly in public, above all, Germany's politicians. With the imminent expiry of the last bailout program, Greece was faced with the predicament that, on the one hand, without more assistance, its banking system would collapse, yet a further bailout would do nothing meaningful to address the sustainability of its debt burden. At the same time, to distract their voters/taxpayers from the reality of the un-repayability of the debt the politicians, again above all Germany's, had to punish Greece, blaming its bad behavior for the crisis and imposing ever more onerous if irrational conditions. For the German political leaders, the calculation was that the people's satisfaction from seeing Greece punished and humiliated would be an effective Ersatz for the satisfaction of being repaid. (I will make no comment as to whether the politicians here rightly gauged the national character). Varoufakis and his colleagues were correct to see that at some point for the Germans, this exercise would only remain politically effective if Greece were given the ultimate punishment-removal from Europe. For Schaueble, the German Finance Minister, nothing was more appealing than the cleansing or purifying Europe of Greeks. The Greek Government knew that, once there was no longer a European community of fate fully including Greece,a profound geopolitical reorientation would be needed for Greece's economic and social survival.
Given Germany's leadership position in Europe, and effective veto on any positive solution, the Tsipras Government was faced with an almost impossible situation as the second bailout drew to a close. The only at all hopeful strategy was to try to change the longer term political dynamics so that debt unsustainability could finally be faced and directly addressed, and German influence somehow marginalized-but how to do so without courting short-term disaster?
The post continues here and here.