It is ironic but not surprising that the European Central Bank (ECB) on Sunday decided to limit its credit to Greece by enough to force the Greek banking system to close.
This has pushed Greece closer to a more serious financial crisis than they have had in the past five years of austerity-induced depression. Why did the ECB decide to take this harsh, unnecessary, and dangerous measure now?
It seems clear that this move is in response to the Greek government’s decision to hold a referendum on whether to accept the last offer from the European authorities on conditions for continuing official lending to Greece. The financial problems and inconveniences of this week, caused by the bank holiday, are the European authorities’ way of saying, “Vote as we’ll tell you to, or we can make your lives even more miserable than we have been making them for the past five years.”
This offer included further cuts to Greek pensions, as well as regressive tax increases. As economist Paul Krugman noted, these are conditions that Prime Minister Alexis Tsipras cannot accept. “The purpose must therefore be to drive him from office,” Krugman concluded.
There is considerable evidence that this has been the European authorities’ strategy since Syriza was elected on January 25. Just 10 days later, on February, the ECB cut off its main line of credit to Greek banks, even though there was no obvious reason to do so. Shortly thereafter, the ECB put a limit on how much Greek banks could lend to the government – a limit that the previous government did not have.
From the European authorities’ point of view, “regime change” is the only logical strategy. They have a nuclear weapon, which is to cut credit to Greece entirely – thus precipitating a Greek financial meltdown that would force the country out of the euro—but German Chancellor Angela Merkel doesn’t want this, and neither does her ally, President Obama. So the European authorities continue to take steps to undermine the Greek economy and government, hoping to get rid of the government and get a new one that will do what they want.
The European authorities had already succeeded in pushing the Greek economy—which was projected to grow by 2.5 percent this year—back into recession. This is due to their credit restrictions and the damaging effect of their game of brinkmanship with the Greek government. Now they have gone further in order to intimidate Greek voters into a “yes” vote.
European officials such as European Commission President Jean-Claude Juncker have tried to convince Greeks that a “no” vote would be a vote to leave the eurozone. But this is not true. It could well be that a “no” vote strengthens the hand of the government to get a better deal, given that the most powerful people in the world don’t want to see an economic collapse that forces Greece out of the euro.
The European authorities are offering no future to Greece – no light at the end of the tunnel, especially for the 60 percent of young people who are already unemployed because of their failed policies. But there are always alternatives to years of economic recession, stagnation, and mass unemployment.
These alternatives are not radical but mostly nothing more than the stimulus policies that dozens of countries, including the United States, implemented in response the world financial crisis and recession of 2008-2009. But the European authorities will not allow the Greek economy to recover. The first step for Greece must therefore begin with saying “no.”
Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. and president of Just Foreign Policy. He is also the author of the forthcoming book Failed: What the “Experts” Got Wrong About the Global Economy (Oxford University Press, 2015).
This article originally appeared in The Globe and Mail.