Sunday, June 28, 2015

Greece: A Referendum on What to Do Yesterday

I'm posting a response I've written to a private email that praises Tsipras' announcement of a referendum scheduled next Sunday (July 5).  The email also asks why the IMF has been so obstructive over the past several months (and years).  My response:

I think a referendum was appropriate, but perhaps a month ago, not now. (1) The creditors never negotiated; they never horse-traded compromises. That was obvious from the beginning, and glaringly obvious when they responded to Syriza's final offer, which tiptoed across some red lines, with even more demands. It was always take-it-or-leave-it. Tsipras and Varoufakis were not honest with the Greek people, in my opinion, by repeatedly making optimistic statements -- they should have said "we can't negotiate with these guys" and put it to a vote right away. (2) July 5 is past the critical deadlines. Default occurs on June 30, and the ECB is likely to terminate ELA as soon as that happens. They are also likely to impose their own financial solution on the Greek banks as they did with Cyprus. By the time the 5th rolls around, voting on whether to accept the final creditor "offer" from two weeks previously will be like refighting the battle of Waterloo.

Now everything is about how to manage the crisis. I hope, with months to prepare, that Syriza has a well-developed program for this. (And one that takes into account that they do not yet control the state apparatus.)

As for the IMF, it was no secret that there has been a lot of tension between the technical staff and the politicians at the top. They have a policy, established after the Argentine fiasco, of not lending to insolvent states, but instead requiring writedowns from the creditors. Ah, but the creditors in the Greek case are the banks and governments that installed the IMF directors, so the policy is being flagrantly violated. Personally, I'm disturbed there have been no high-profile resignations on the part of the IMF economists. It's not like Blanchard couldn't pick up another job somewhere, for instance. Years down the road there will be memoirs saying "I argued against this behind closed doors", but when has that ever really mattered?

At the moment, no one -- absolutely no one -- playing a role in this mess is looking good.


Sandwichman said...

With all due respect, Peter, I think you are looking at this from the perspective of an economist. I have a different interpretation from the perspective of collective bargaining. Economically one would want to avoid a strike. You lose more in a strike than you make up in the subsequent settlement.

But if the employer knows that you won't strike, no matter what, you are finished. Syriza are not playing the costs and benefits game. They are playing the solidarity game. It's a different game. And it's a longer game. It's a hard game and Syriza could lose. But there is a chance they could win. In the economic game, there is no question that Greece would lose. And lose. And lose.

Sandwichman said...


"...right now a remarkable number of the professional economists who either play important roles in making policy or appear to have influence on the discussion got their Ph.Ds from MIT in the second half of the 1970s. An incomplete list, with dates of degree:

Ben Bernanke 1979
Olivier Blanchard 1977
Mario Draghi 1976
Paul Krugman 1977
Maurice Obstfeld 1979
Kenneth Rogoff 1980"

Peter Dorman said...

I think I'm making a simpler point, actually. Syriza proposes a referendum because they face a choice of caving or embarking on a chaotic and probably destructive transition. But they faced this choice right from the beginning, and they should have known. And if they knew, they should have leveled with the people. I think they had the idea that, by standing firm on principle, they would inspire vast demonstrations of support across Europe. But that didn't happen, and it was obvious some time ago that their "partners" wouldn't budge. It's also obvious that the creditors do not fear a Greek collapse -- they only want to make sure that the responsibility is put on Syriza and not on them. Within Europe they've succeeded at this brilliantly.

The referendum is not only too late strategically, it is too late as an advisory tool. The key choices, whatever they will turn out to be, will be made over the next few days.

Sandwichman said...

Perhaps they should have known, Peter, and perhaps they did know. That doesn't mean the picture would have been clear to the Greek people and to outside observers. What we have seen in the final reply to the Greek proposal is bad faith bargaining. There isn't an independent labor relations board to rule on that.

Do I remember correctly that you were not calling for a referendum a month ago? Did you think and say a month ago it was appropriate or do you just think now that it would have been appropriate a month ago?

Peter Dorman said...

Fair question. In fact, I think I've been reluctant to propose any particular strategy for Syriza because I don't think there was one with any credibility. Most of my posts went after "the institutions", since that was a lot easier. I can't blame Tsipras et al. for losing; they never really had a chance. I would criticize them for not being honest with the voters who put their faith in them though.

Anonymous said...

It seems obvious that Syriza was playing for time, with two plans:

1) hoping the Troika would (after 5 years of failed austerity) be open to some write-downs.

2) planning to bring enough of the Greek public around to the idea of leaving the Euro so that Syriza could stay in power.

"Leveling with the people" and "being honest" implies that the Greek population are the rational consumers postulated in too much economic theory. People aren't Star Trek's Vulcans - they're emotional, and it cold facts and hard logic don't change people's emotional biases. For experimental verification, try fact-based arguments for limited gun safety laws on Second Amendment absolutists.

Sandwichman said...

"People aren't Star Trek's Vulcans"

Exactly. Some people may be Vulcans but a population isn't.

Les Baker said...

"Leveling with the people" and "being honest" is an ethical imperative, even though people are not rational economic consumers. Otherwise, one is deceiving and defrauding them. In this case, the Greek people were lied to, not nobly, and never for their own good. The results are already here to see: Mr. Tsipras takes to the TV to tell the people to keep calm, while the people continue bank runs, commence runs on food shops, and commence runs on fuel stations. Mr. Tsipras is not a trusted leader in an emergency where one is needed. He put himself in that position. (Note: I an not an economist, and I do not propose to reason like one.)

mikehall said...


I agree with others here.

You seem to think that 'levelling with voters' months ago (by Syriza), that the Troika were not interested in negotiations, would have instantly garnered mass public support for (effectively) Euro exit, and the period of chaos and uncertainty that goes with it.

And you suggest that Syriza were naive to (possibly) imagine that a deal could be done?

After everything that has happened to Greece - over 5 long years - we know from polls that a large majority of Greeks still wanted to stay in the Euro. Syriza knew that better than any of us.

Yet, you think some statement by largely unknown leaders in Syriza, with no previous government office experience or track record, who only just scraped a narrow victory (to form a coalition government), after a month ot two in office was going to transform - utterly reverse - those poll results on Euro membership?

Tell me, what do consider to be the relative propaganda power of the neoliberal elites of Europe (including in Greece itself) vs a handful of hithertoo unknown academics turned politicians?

I realise that you are supportive, like me, of such things as justice and (real) democracy, in the interests of the majority ordinary citizens. (I think)

But I must say I am grossly disappointed by yours and other criticisms of Syriza's strategy. Especially now, as the elites will ramp up to max their efforts to blame Syriza for the (likely) Grexit and all that entails. (Already started with front page pictures of angry and scared Greeks queuing at closed banks - fuel stations, food stores etc. in the following days. Makes great disaster porn.)

There was never going to be a good time to call a referendum. The bank run we're seeing was always going to happen following such an announcement.

What Syriza needed to do above all, was to establish with minimum doubt their own integrity in trying to play a game with elites that most citizens still regard actually has at least some honesty in it on the latter's part. That is, citizens utterly ignorant by education/media design over, what, 60yrs? in macro economics principles, as distinct from 'household' micro economics drivel. (I believe the modern neoliberal return to nasty 19thC economics/politics began in the McCarthite purges in 1950s US.)

Whether Syriza actually thought they might get a deal or not, if they had any intention of standing firm (ultimately) - as they seem to have done - I believe they did know that if a deal wasn't forthcoming, they would need far more political support from citizens, to cope with the consequences, than they were elected with.

You talk about the supposedly large demonstrations - citizens backlash - against what the neoliberal elites have done. What exactly do think all these people (by no means a majority - yet) are desparately hoping for from some political leadership?

Let me tell you, I'm one of them. I witnessed 1st hand, as a member of the Irish Green party in coalition government, when €64 billion of private bank pyramid bust debt was dumped on a population of 4 million. And the Irish politicians, including Greens simply rolled over.

We want political leadership to take a stand. Enough is enough. We understand this is a battle, and it will be tough to reverse what amounts to a coup d'etat upon ordinary people by vicious elites.

Looks like Syriza are doing that, and with the best possible chance, under difficult circumstances, of getting enough public support to continue.

What we need now more than ever is some decent mass education for people to properly understand macro economics. And in my view, to understand how a fiat, free floating money system can be used properly for public purpose by a competent government. (Preferably along MMT lines, Functional Finance, Job Guarantee etc.)

Or are we, the people going to be let down again by an intellectually bankrupt 'left wing' body of the economics profession, as we have been for decades?

Peter Dorman said...

I will keep my reply short; it's essentially the same as the one to S-man. I truly don't know what an effective strategy for Syriza could have been or if there even was one. For this reason, I used the blog to go after the creditors, period. I tried to be a bit educational, especially on the slippery use of the word "reforms" to refer to ideological diktats that could only make matters worse. I did not lecture Syriza.

But I believe it was obvious from the outset that (a) the creditors were not going to compromise and (b) they weren't going to be swayed by a (nonexistent) mass upswelling of support for Syriza. Today's moment was in the cards months ago. I agree that folding is indefensible, which means that this moment should have been prepared as carefully as possible.

And very specifically: (a) The referendum is too late. Let's see where matters are at come Sunday. (b) My politics cannot accept the dishonesty of telling the public that an agreement is just around the corner, when you know quite well that it's not.

Do I have to add that this criticism of Syriza does not diminish in any way my view (supported by repeated argument at this site) that the creditors have behaved unconscionably?

And really, what does your disagreement with me (or S-man's) have to do with my being an economist?

Sandwichman said...

"And really, what does your disagreement with me (or S-man's) have to do with my being an economist?"

Fair enough. One doesn't have to be an economist to foreground a utilitarian calculus. We all (or most of us) do emphasize such a calculation at times. My argument, really is that this is not one of those times. I think the "economist" label refers to the difficulty of recognizing situations in which the utilitarian calculus is misleading. In that sense, Joe Stiglitz is not being an economist on the question of the referendum. And I mean that as a compliment.