THE GREEK BOTTOM LINE

What’s going on regarding Greece?  Here’s one bottom line: 

The people who run the EU and the Eurozone have suffered a reputational catastrophe.  The EU/Eurozone has shown itself unable to manage its basic moral responsibilities

Oxi Day (pronounced oh-hee, the Day of No) has totemic significance in Greece. It commemorates the defiant Greek "No!" to Mussolini’s ultimatum in October 1940, and the heroic acceptance of war against a vastly bigger military machine.  Churchill’s praise was:  "Greeks don’t fight like heroes – heroes fight like Greeks."

It is the same word – Oxi, No! – that will top the ballot sheet when Greeks vote in a snap referendum this Sunday (7/05) on creditor demands, and prime minister Alexis Tsipras is not shy in evoking the same spirit of wartime resistance.

His speech to the nation on Wednesday night was peppered with talk of ultimata. He accused "extreme Right-wing circles" of forcing the closure of the Greek banks and the imposition of capital controls through liquidity asphyxiation.

He lashed out at "authoritarians" in charge of the IMF and EU institutions. He spoke of attempts to blackmail the Greek people. And he vowed to campaign against the creditor package — which, strictly speaking, is no longer on offer — deeming it the "destruction of Europe".

Where this will take him, and take Greece, is anybody’s guess. The latest Efimerida ton Syntakton poll shows the "No" side leading by 54% against 33% for "yes". But that lead — if it really exists — may evaporate as the ghastly consequences of financial collapse become clearer by the day.

Distraught pensioners have been gathering in small, tense crowds outside banks trying to withdraw their weekly allowance of €120 ($133). Many have not been paid. A throng of veterans protested outside the finance ministry yesterday morning (7/01), denouncing EU "dictatorship" and Mr. Tsipras with equal fury.

Ambulances in parts of northern Greece have run out of fuel. The Greek Chamber of Commerce warns of "serious shortages" of basic goods and pharmaceutical supplies within days. The radical-Left Syriza government is skating on very thin ice.

If Europe’s creditor powers have succeeded in bringing Greece to its knees, they have paid a fearful price themselves. As Pyrrhus of Epirus said after the battle of Asculum in 279 BC: "Another such victory, and we will be utterly ruined."

We can already see that the EU itself has suffered a reputational catastrophe on several fronts. This is of far greater importance in the sweep of events than daily twists and turns in Athens.

It has brought about a state of affairs where a member of its own eurozone family has become the first developed country in history to default to the IMF.

Let us be clear what this means. The currency union itself is delinquent. The rich countries of northern Europe are refusing to pay African, Asian and Latin American states. Blaming it on Greece alone does not wash.

The eurozone has shown itself unable to manage its basic moral responsibilities. Russian president Vladimir Putin could hardly resist his own wicked dig, professing "great concern" over the EU’s vanishing credibility.

This default is doubly shameful given that the original IMF-Troika loan in 2010 was not intended to save Greece. The extra debt was imposed on an already bankrupt Greek state to buy time for the euro, against Greek interests.

Leaked documents leave no doubt that the real purpose was to save monetary union and the European banking system — and to avert a "Euro-Lehman" in the IMF’s own words — at a time when the eurozone had no defenses against contagion.

Worse, the bitter showdown has made brutally explicit what many long suspected, that sovereign democracies count for nought when push comes to shove in Euroland.

The European Central Bank is not the chief villain, perhaps, in the latest chapter. It is in an impossible position. Yet citizens across Europe can see with their own eyes that the ECB has been rationing emergency liquidity (ELA) for a prostrate country as a tool of political pressure, and that it forced Syriza to take the drastic step of shutting the banks by freezing ELA at €89 billion.

It is an odd spectacle to watch a central bank with a treaty duty to uphold financial stability take the deliberate decision to precipitate the collapse of banks that it regulates.

But the deeper point is that the insane construction of the euro — a naked currency union without fiscal and political foundations — must inevitably tend to authoritarian monetary dystopia in the end.

It is, however, too soon to conclude that Syriza will buckle to creditor demands. It is certainly hard to read the real intentions of Mr. Tsipras. His defiant stand last night (7/01) is starkly at odds with the letter he sent to EMU officials earlier in the day and the IMF on Tuesday (6/30) that seemed, at first blush, to make big concessions. But nothing is ever what it seems in this weird drama.

"Those who say we have a secret plan for Greece to exit euro are lying," he swore with an impressively straight face. He denied that a "No" vote implies Grexit — though the leaders of France, Germany and Italy say it means exactly that — knowing that few Greeks are yet willing to take such a drastic step.

Yet one might suspect — and I have not made up my mind — that he and Syriza’s inner circle concluded in April that they could not do business with an EMU regime that acts solely as the enforcement arm of the creditors.

They may have concluded that demands for further fiscal contraction were economic lunacy — a view shared by the Nobel fraternity and the US Treasury — and that no serious debt relief was on the table, and therefore they would do better to default and restore a Greek sovereign currency.

If so, they cannot admit it. They must make it appear that the decision was forced upon them, just as France’s Leon Blum had to tell white lies to free his country from the Gold Standard in 1936.

Syriza officials are fully aware that the likely consequence of a "No" vote would be a parallel currency — or IOUs — along with the nationalization of the banks along the lines of the "Icelandic Model." Syriza’s Left Platform has already drawn up plans along these lines. Variants almost certainly exist in the Greek finance ministry.

Such action implies a return to the drachma in short order. The Greeks would continue to insist that the country remains a member of the euro, with full legal rights — blaming the creditors and EU bodies for acting illegally.

Only by doing so could they ensure that the full losses from Grexit fall on the ECB and the EMU bail-out funds, while the assets of Greek citizens remain legally protected in foreign accounts, free to return later to rebuild a new banking system.

If you were of a suspicious mind, you might wonder whether Mr. Tsipras has not in fact lured European leaders and officials into a legal trap, and that they have fallen for the bait.

His Byzantine negotiating tactics may make perfect sense after all.

Ambrose Evans-Pritchard is the International Business Editor of the London Telegraph.

Discuss this item on the forum. Click Here!