Leslie Budd, The Open University

The issue of liquidity in Greek banks is one of the most pressing now that the referendum is over. As widely reported, Greek banks are running out of reserves – even with capital controls in place since June 28 putting a €60 cap on the amount Greeks can withdraw from their accounts. There are a number of pressing issues that, if not resolved, could lead to a Grexit.

With a freeze on the amount of emergency assistance being provided by the European Central Bank (ECB), Greek banks remain unable to reopen. A short-term solution would be for the banks to issue IOUs backed by the Bank of Greece. This, however, would effectively be a parallel currency and would be the first stage of reintroducing the drachma. It would also be a big step toward leaving the eurozone.

The ECB is withholding the amount of emergency liquidity assistance (ELA) it is providing Greece in lieu of a bailout deal that will guarantee (in their eyes) Greek solvency. Pending the ECB stepping in to stabilise banks with more ELA, Greek banks will remain shut – and their reserves will quickly diminish.

The clear and present danger is that Greece’s creditors will maintain an attitude of “euro-hubris”. This attitude is displayed in an inflexible commitment to obeying fiscal rules irrespective of their socio-economic outcomes. Consequently, the ultimate price to pay for the Greek No will be a Grexit.

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Paul Krugman writes: Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.

Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. [Continue reading…]

John Quiggin writes: Lots of people have raised the suggestion of applying game theory to the the Greek debt crisis. I haven’t attempted this, reflecting my general scepticism about game theory in the absence of a well-defined strategy space.

But now the Greek government and public have made what is, in effect, a final move.

In view of the No vote, Syriza can’t accept a deal that doesn’t include an explicit debt write-off, or one that obviously crosses its stated red lines. Within those parameters, it’s clearly eager for a face-saving compromise.

For the other side (effectively the Troika and the German government), since Syriza’s move has already been made, the problem has now been reduced to one of decision under uncertainty, which is something I am comfortable with.

More precisely, it’s a choice between a “safe” option, with an outcome that is fairly predictable, and a “risky” option where the outcome is uncertain.

The safe option for the European institutions is to back down, write off lots of debt and lose a lot of face. [Continue reading…]

Alex Andreou writes: “They have decided to strangle us, whether we say yes or no”, said a Greek woman to me yesterday. “The only choice we have is to make it quick or slow. I will vote “oxi” (no). We are economically dead anyway. I might as well have my conscience clear and my pride intact.”

Her view is not atypical among friends and relations I have canvassed in the last few days. Trust has evaporated. Faith in European Institutions is thin on the ground. Lines have been crossed. At times of financial strain, a country’s currency issuer, its central bank, should act as lender of last resort and prime technocratic negotiator. In Greece’s case, the European Central Bank, sits on the same side as the creditors; acts as their enforcer. This is unprecedented.

The ECB has acted to asphyxiate the Greek economy – the ultimate blackmail to force subordination. The money is there, in our accounts, but we cannot have access to it, because the overseers of our own banking system, the very people who some months ago issued guarantees of liquidity, have decided to deny liquidity. We have phantom money, but no real money. There is a terrifying poetry to that, since the entire crisis was caused by too much phantom money in the first place. [Continue reading…]

By Alexander Douglas, Heythrop College, University of London

On the surface, it seems the Greek crisis is all about money. The Greek government has defaulted on a €1.6bn loan repayment to the IMF and is seeking a new bailout programme. Meanwhile, the Greek people are to take part in a referendum that is being billed as a choice between the euro and the drachma.

In fact this crisis is not about money. Greece’s creditors are well aware that Greece cannot repay or even service its debt. They are happy to keep finding ways to refinance it, so long as Greece agrees to punitive austerity policies. They aim for punishment, not repayment. They care about honour and vengeance, not money.

Modern Europe is witnessing an enactment of an ancient law known as wergeld. Greece is expected to continue paying, not until its financial debt has been cleared, but rather until its creditors think it has suffered enough.

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Clive Cook writes: There’s no doubt that Greeks want to stay in the euro system — though I find it increasingly difficult to see why. If Greece leaves the system, it won’t be because Greeks decide to leave; it will be because Europe decides to kick them out.

This isn’t just semantics. There’s no reason, in law or logic, why a Greek default necessitates an exit from the euro. The European Central Bank pulls this trigger by choosing — choosing, please note — to withhold its services as lender of last resort to the Greek banking system. That is what it did this week. That is what shut the banks and, in short order, will force the Greek authorities to start issuing a parallel currency in the form of IOUs.

A truly independent ECB, willing to do whatever it takes to defend the euro system, could have announced that it would keep supplying Greek banks with liquidity. If the Greek banks are deemed in due course to be insolvent (which hasn’t happened yet), that doesn’t have to trigger an exit, either. Europe has the wherewithal and a bank-rescue mechanism that would allow the banks to be taken over and recapitalized. These options are foreclosed because the supposedly apolitical ECB has let Europe’s finance ministers use it as a hammer to extract fiscal concessions from Greece.

Nobody ever imagined that a government default in Europe would dictate ejection from the euro zone. The very possibility would have been correctly recognized as a fatal defect in the design of the system.

If the Greeks vote no, a Greek exit is a possible and even likely consequence. But if it happens, the reason won’t be that Greece chose to go. The reason will be that the European Union and its politicized central bank chose to inflict exit as punishment. [Continue reading…]

Helena Smith writes: Varoufakis is muscular, fit, amiable, slightly off-centre, everything he seems on camera. But what film does not capture is his energy, focus and intensity. An hour in his company will take you places; in our case, from Marxist theory to the joys of jazz; the eurozone and its incomplete architecture; sartorial tastes; Nazism; the bigness of America; austerity politics; debt traps; poetry; exercise and Varoufakis’ tendency to keep his hands in his pockets (the result of a shoulder injury).

The academic, who had a faithful following on the lecture circuit, despite being a self-described accidental economist, subscribes to the view that one should have an opinion about all and sundry. It is, he says, something he picked up long ago. “I was told, once, by a leftwing scholar that as a Marxist you have to do two things: always be optimistic and always have a view about everything. That advice still sounds good to me.”

At 53, Varoufakis is still clear that he “understands the world better” as a result of having read Marx. But he no longer considers himself a diehard leftie, whatever others may think. Rather, he says, he is a libertarian or erratic Marxist, who can marvel at the wondrousness of capitalism but is also painfully aware of its inherent contradictions, just as he is “the awful legacy” of the left. “It is a system that produces massive wealth and massive poverty,” proclaims the economist who taught at the universities of East Anglia, Cambridge, Glasgow and Sydney after gaining his doctoral degree at the University of Essex. “I don’t think you can understand capitalism until and unless you understand those contradictions and ask yourself if capitalism is the natural state. I don’t think it is. That’s why I am a leftwinger.”

More than that, Varoufakis is an iconoclast, a self-styled “contrarian” who is also an idealist, “because if you are not an idealist, you are a cynic”. And he has, he laments, lost a lot of friends on the left who believe that Grexit, Greece’s exit from the currency bloc, would be the country’s best course.

“It’s one thing to say you shouldn’t have gotten into the euro, it’s quite another to say you should get out of the euro. If we backtrack, we fall off a cliff. This is my argument to everyone.” Europe, he insists, is stuck with Greece because Athens is never going to ask to leave the euro. Fittingly, perhaps, the new MP, who has dual Greek-Australian citizenship, is not a signed-up member of Syriza, the party he now represents in the rambunctious Athens parliament. Syriza’s militant wing wants nothing more than to get out of the monetary union. [Continue reading…]