Grexit: The Iceland Cometh
by Tom Sullivan
Quite a blow for Merkantilism today. #Greferendum
— Stephanie Kelton (@StephanieKelton) July 6, 2015The final tally was a 61-39 landslide for the No's. The Wall Street Journal and other outlets called the Greek referendum "divisive." Like Bush's 2000 win was a mandate.
All I could think of all day was Iceland. A big middle finger to creditors. Throw a few bankers in jail. It was as bracing as Iceland's winters. Less than a decade later, Iceland is doing fine, thank you, said President Olafur Ragnar Grimmson in 2013:
“Why are the banks considered to be the holy churches of the modern economy? Why are private banks not like airlines and telecommunication companies and allowed to go bankrupt if they have been run in an irresponsible way? The theory that you have to bail out banks is a theory that you allow bankers enjoy for their own profit, their success, and then let ordinary people bear their failure through taxes and austerity. People in enlightened democracies are not going to accept that in the long run.”
But Greece is not Iceland, as the Washington Post noted on Saturday – even as the authors' prediction on the vote went awry on Sunday:
The stakes are high. They are perhaps higher for Greece than they were for Iceland. While at the time the cost of accepting the repayment terms was quantifiable for Icelanders (calculated as approximately $17,000 per person), there’s no easy way to know what voting either way will mean for Greeks. The choices being put to them are costly either way and, sadly, Greece’s economic woes seem unlikely to be resolved anytime soon — even if voters say yes in the referendum. Icelanders said no to their creditors and seem now, four years later, on a sure enough economic footing again that they deliberately withdrew the application for EU membership they submitted in the midst of the Icesave crisis. Yet Greece faces a much larger, longer economic battle, even if it yields to the current bailout conditions.
Well, Greek democracy stood up to the central bank technocrats. Democracy — governance by the people — is so inconvenient for "Merkantilism" that way. The bankers, thus, have behaved like loan shark enforcers with Greece. So in a performance worthy of a Republican presidential debate, the Troika demanded the poors of Europe pay their debts in a way they wouldn't expect big banks to. Almost as if they learned that from watching Wall Street banks insist homeowners with underwater mortgages keep paying, while the banks themselves received bailouts. For me, but not for thee. Gotta keep the poors and their democracy in line or they get uppity, like Iceland, dontcha know.
Early moves in Asian markets do not indicate any panic, according to the Financial Times.
This morning, Paul Krugman responds to what the financial press (naturally) describes as a "Greek tragedy." He writes that Europe actually dodged a bullet:
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.
Greek voters' answer to another round of bleeding was a big middle finger.