The Greece referendum and the future of national sovereignty

So the Greek public followed the lead of their prime minister Alexis Tsipras and his Syriza Party and voted overwhelmingly 61.3%-38.7% to reject the bailout deal demanded by the so-called troika of the International Monetary Fund, the European Central Bank, and the European Commission backed by Germany and France. The Greek finance minister Yanis Varoufakis, considered a key architect of the Greek strategy to fight the troika’s terms and had thus enraged them, resigned following the successful outcome of the vote so as to clear the way for fresh talks to begin.

I have not been following the details of this issue closely. But I do have political instincts and those tell me that governments and the big multinational financial institutions always favor the interests of the banks over that of ordinary people. We saw that in the US with the financial crisis and there is no reason to think it is any different with Greece where it seems like the troika is acting on behalf of the big banks and insisting on further austerity for ordinary people in order to preserve the interests of the international financial sector.

What seems to be at issue here is that the troika is willing to loan more money to the Greek government purely so that they can turn around and give it to the banks, and then squeeze the Greek people with austerity measures so that they can pay the money back to the troika. In the US we saw a similar plan where the government, both the US Treasury and Congress, was very willing to write huge checks out of taxpayer money to bail out the banks that handed out all the risky loans while not requiring any major restructuring of the banks to prevent such things again.

Since anything that sticks it to these transnational financial interests and to the arrogant German chancellor Angela Merkel gets my support, I applaud the Greek people for their vote. But let us be under no illusions. Greece is up against very powerful forces that will seek to punish it severely to show them and others that they are not to be trifled with and that anyone who defies the big banks will be crushed.

As Seumus Milne wrote on July 1 before the referendum:

It’s now clear that Germany and Europe’s powers that be don’t just want the Greek government to bend the knee. They want regime change. Not by military force, of course – this operation is being directed from Berlin and Brussels, rather than Washington.

But that the German chancellor Angela Merkel and the troika of Greece’s European and International Monetary Fund creditors are out to remove the elected government in Athens now seems beyond serious doubt. Everything they have done in recent weeks in relation to the leftist Syriza administraton, elected to turn the tide of austerity, appears designed to divide or discredit Alexis Tsipras’s government.

They were at it again today, when Tsipras offered what looked like almost complete acceptance of the austerity package he had called a referendum on this Sunday. There could be no talks, Merkel responded, until the ballot had taken place.

There’s no suggestion of genuine compromise. The aim is apparently to humiliate Tsipras and his government in preparation for its early replacement with a more pliable administration. We know from the IMF documents prepared for last week’s “final proposals” and reported in the Guardian that the creditors were fully aware they meant unsustainable levels of debt and self-defeating austerity for Greece until at least 2030, even on the most fancifully optimistic scenario.

That’s because, just as the earlier bailouts went to the banks not the country, and troika-imposed austerity has brought penury and a debt explosion, these demands are really about power, not money. If they are successful in forcing Tsipras out of office, a slightly less destructive package could then be offered to a more house-trained Greek leader who replaced him.

Hence the European Central Bank’s decision to switch off emergency funding of Greece’s banks after Tsipras called the referendum on an austerity scheme he had described as blackmail. That was what triggered the bank closures and capital controls, which have taken Greece’s crisis to a new level this week as it became the first developed country to default on an IMF loan.

Tsipras’s rousing victory has put a temporary halt to that plan to oust him but you can be sure that Germany and the troika are right now hatching a new plan to humiliate the people of Greece and its leader for the audacity of thumbing their noses at their rulers.

What we are seeing in front of our eyes is the new world order in action, where transnational capital and the financial sector rule the world. Milne continues:

Not only has no German or any other EU taxpayer taken any loss bailing out Greece. The real fear in Brussels and Berlin is not that people in countries such as Spain and Portugal who have taken the brunt of eurozone austerity will oppose relief for ravaged Greece – but that they’ll want an end to austerity and their own debts written off as well.

That’s what they call “moral hazard”. But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms.

That’s why Merkel and the ECB mandarins want Greece’s surrender. Upstart democratic governments that challenge austerity must be crushed: the real risk of contagion is as much political as financial. This is, after all, a system where unelected institutions and other states have the power to override elected governments – in fact to impose not only policies but effectively governments too, as we may be about to see in Greece. Anti-democratic firewalls are built into Europe’s institutions.

I feel sorry for the Greek people as they face a very bleak future however things shake out. The banksters are greedy and merciless beyond comprehension. The banks have already shown that they rule the US and are immune from any prosecution for their wrongdoings. If the US government will not act against them, what chance has the puny Greek government got? But unlike in the US, at least the Greek people got to have their say on this major issue and can take pride in knowing that they made a bold statement of defiance and independence.

UPDATE: Thanks to moarscienceplz, here is an excellent radio interview with political economist Mark Blyth that shoots down a lot of the myths around the Greek crisis. (You can also read the transcript.)

Meanwhile Thomas Piketty also slams Germany has having no moral standing to lecture other countries on not defaulting on debts.


  1. aashiq says

    Greece had a debt restructuring in 2010. At that time, private banks with Greek debt were paid off, and EU banks took the debt, so that if Greece now crashes only ordinary taxpayers of these countries will foot the bill. It is exactly as you say, the big bankers run the governments, and when they run into trouble the governments rescue them.

    This is a Greek tragedy, a morality play of democracy and the rights of people, versus the rights of capital. It will come up again and again, and has done so.

  2. says

    Troika is a term from the Soviet era. It referred to the things that came in threes, of which there were several. Most applicable to Greece were three corrupt bodies of corrupt Soviet regime: the communist party, KGB and NKVD, and also three person “secret courts” that could try, convict and imprison people without question on no evidence, who had the power to intimidate and force capitulation of people.

    I suspect the Greek people well understand the old missive:

    If you owe someone ten thousand dollars, they own you.
    If you owe someone ten million dollars, you own them.

    What are the fascists going do? Bankrupt the Greek economy? Any attempt to do that will only result in non-payment and a financial hole that other countries will have to deal with. The Greeks are also keenly aware of their own history, of the US (via the CIA) and others attempting to impose puppet fascist governments onto their country, and they are unwilling to let that happen.

    See also: Nicaragua and the US’s economic terrorism. People only elected right wing parties because US sanctions were destroying their economy. Unfortunately, years of corrupt right wing rule was even worse, and the Sandanistas were popularly re-elected to fix those problems, despite US attempts at intimidation and further economic terrorism.

  3. Who Cares says

    The creditors badly misjudged how bad the situation in Greece is. A lot of the no voters voted that way because they think they have nothing left to lose.

    The big question is what is more important for the main players on the creditors side. And there is a difference in what is the rational choice for the people and what is the rational choice for the institution they represent.
    If they take the rational choice as individuals then Greece won’t get their debt relief and will exit the Euro but the individuals will stay in power.
    The rational choice for the institutions they represent is give Greece the debt relief which will keep the Greeks in the Euro but will cost one or more of the public faces (Merkel, Dijsselbloem, Juncker) of the EU negotiators their job.
    Aside from that there is damage done to the EU thanks to the rejection. This will strengthen the 5 Stars Movement (Italy), Podomos (Spain), Socialists (Portugal), Sinn Feinn (Ireland) in their demands for similar treatment.
    Finally there is something that few have recognized yet. One of the reasons that got the Coal & Steel Union started was to prevent Germany from taking over Europe again by tightly integrating it. One of the unsaid conditions was that Germany should never act as leader to assuage fears that it would now try to do so anyhow. People are already whispering about Germany trying to take over the EU due to how visible Merkel has been in directing the EU side of the negotiations.

    how undemocratic is the EU?
    The Eurogroup of finance ministers sets policy, they barred entry to Voufakis (Greek financial minister) who complained about that. The reply back was: “This is an informal group so we can decide on our own who is in it”. And that is the most democratic of the EU partners that the Greek were negotiating with since at least all it’s members can be removed when the state they represents gets new elections.

  4. moarscienceplz says

    But I do have political instincts and those tell me that governments and the big multinational financial institutions always favor the interests of the banks over that of ordinary people.

    Political economist Mark Blyth, speaking on NPR’s On the Media yesterday:

    The Greeks have been given 249 billion Euros in Loans, but 205 went straight back to the creditors, otherwise known as the banks. Hardly any of stayed in Greece. The bit that was used to finance Greece’s government operations was a tiny percentage of the total. And yet all we hear is that the Greeks have got all this money and spent it again, it’s just rubbish. IT’s just flatly wrong.

  5. Mano Singham says


    Thanks so much for that excellent link. I have updated the post to include it.

  6. Who Cares says

    Another fun fact:
    If the Greek banks can’t repay the ELA (emergency Liquidity Assistance) the exposure of the Eurozone members to Greek debt raises by another 30 to 90 billion due to the collateral given in exchange would also be reduced, resulting in the situation where the ECB becomes illiquid which would force the Eurozone members to recapitalize the ECB.

    Depending on how the negotiations go this can vary from about the 30% reduction in debt. Thus also reducing the collateral, which consists mainly of government bonds, triggering a forced redemption from the Greek banks. And then they’ll perform some voodoo to prevent the banks from going bankrupt due the inability to provide more collateral or reduce their stake of ELA money to match the new value of their collateral. But the ECB will be out of around 30 billion at this point and that will trigger recapitalization requirements.
    If the negotiations don’t bring results in the next 14 days (or for how long they’ll allow the Greeks to defer payment) those banks will be bankrupt and the ECB will be holding collateral that isn’t worth the electricity of the servers it is kept on. Resulting in a 100% write off or about 90 billion worth of ELA collateral and thus 90 billion of money transferred to Greek banks triggering recapitalization requirements.

    Bit funny, in watching a slow moving trainwreck occurring way, that the drawn out negotiations due to the creditors thinking they could dictate the outcome, and the threats (that is what was done in the last two weeks, a deliberate ratcheting up of rhetoric to cause a bank run) will only cost the creditors more.

  7. mnb0 says

    Yup. Not the Cypriotic crisis was a scandal (typical that you back then wrote a lot about it, but now ignore it), the Greek crisis is. Unfortunately you once again are too simplistic.

    “But let us be under no illusions.”
    You still are. The referendum has zero impact. Greece will suffer, one way or another, simply because it’s not able anymore to remedy the problems on its own. Now compare 1945-1950. Europe was in an even worse situation. Fortunately the main creditor then was way, way more sensible.
    That’s the scandal, whether the European leaders are malevolent or incapable.

  8. brucegee1962 says

    mnbo, there’s a big difference between running up a huge debt because you’re waging a war to defeat evil, and running up a big debt because your leaders are incompetent, dishonest, and/or corrupt.

  9. Who Cares says

    Which was neither. It was Germany who got the debt relief. In 1953 France, Great Britain and the USA drew up an accord (The London Agreement on German External Debts) that forgave 50% of the debt that Germany had And part of the debt would be deferred until the point that Germany would be reunited. That last part was only partially done, Helmut Kohl declaring that there would be no more in 1990.

    They are neither. What they are doing is chasing a dream that has slowly been turning into a nightmare (for Greece but also for Spain, Portugal, Ireland and Italy) and they are desperately trying to make it a good dream again, they see that as their great work which will stand through the ages.
    And the first step to that is to prevent the Eurozone from falling apart or worse the EU falling apart. For that reason they could not let the Greeks of the hook, even though they themselves impaled the Greeks on that hook the 2009/2010 bailout.
    That is why Juncker, Merkel and Dijsselbloem went ballistic when Tsipras announced the referendum because only a yes on that would keep their great work intact.
    Which means they are in a bind now. The combination of the rejection of their terms by the population of Greece and the rapport by the IMF that Greece needs at least a 30% reduction in debt load gives them 2 choices (from how they look at this).
    Either they give debt relief to Greece and thanks to their own rhetoric the anti-EU parties in the rest of the Eurozone will gain in popularity. Britain will most likely vote to leave the EU in 2017. Front National will get the French presidency and a majority in the government in France after which they’ll try to leave the EU as well. This is the end of the great work that they (Juncker, et al.) have been working for.
    Or a quick dissolution of the Euro by letting Greece go instead of giving debt relief. Once they do this the financial markets smell blood and will start poking at Italy, Spain, Portugal. The financial strain that is caused by that on the Eurozone will most likely be increased by the election of the anti-austerity party in those nations. Resulting in them leaving the Eurozone. End of the Eurozone as it is known now. Might have a knock on effect that will result in both Britain and France leaving as above.

  10. John Morales says

    … voted overwhelmingly 61.3%-38.7% …

    3:2 is nowhere near unanimity, overwhelming as it may have been.

  11. Mano Singham says

    John @#11,

    I am not sure that I understand your comment. Why would anyone expect unanimity in a national referendum?

  12. John Morales says

    Mano @13, I noted that it’s overwhelming in the sense that it’s decisive, but not in the sense that it represents the vast majority, which is the rhetorical implication.

    (Or: I’m alluding to loaded language)

  13. aashiq says

    The really frightening thing for the eurozone is if Greece defaults and leaves….and then prospers.

    The Germans have leeched off the EU market access for their exports, and every incentive to hold things together. But being teutonic, may may cut off their nose to spite their face.

  14. Kilian Hekhuis says

    “the troika are right now hatching a new plan to humiliate the people of Greece and its leader for the audacity of thumbing their noses at their rulers” -- I didn’t know you were this left-leaning, Mano. I usually think you are the master of reason, but in this case I think you got a bit… emotional? Anyway, this raises an interesting discussion about what governments and international institutions should and shouldn’t do with regards to crises like these. Greece, as a country, is 315,000,000,000 euro in debt. That’s about 29,000 euro per capita. Even if we assume that the “people of Greece” really can’t help what is happening (which is a bold statement -- the government’s problems are for a large part due to corruptions and the reluctance to pay taxes), why should the people of Italy and Spain, countries in which people are not much richer than in Greece, have to pay the Greek people? (Italy has loaned Greece some 37,000,000,000, which is 600 euro per Italian but 3400 per Greek, Spain some 25,000,000,000, which is 500 per Spaniard but 2250 per Greek). Various European governments are already taking about relief aid for the Greek people, but you can’t let a governemnt of a country get away with debt, or you’d get a world wide financial crisis (the Portuguese, Spaniards and Italians also didn’t like their goverment’s measures after their countries were saved the same way Greece was, only they didn’t blow it).

  15. Sleeper (from Sci-Blogs) says

    Who Cares #6

    Why would the European Central Bank (ECB) require recapitalisation? It can create money at will.

  16. Mano Singham says


    I have repeatedly described myself as a socialist so the words ‘left-leaning’ hardly goes far enough! I like to think of myself as far left and I think Bernie Sanders, though I like him, is too conservative.

    As for Greece, the more I read, the more I find that the picture painted of them as living off the rest of Europe to be unconvincing. I will be writing more about Greece tomorrow.

  17. Who Cares says

    @Sleeper (from Sci-Blogs)(#17):
    They can’t. There needs to be something of value (for different definitions of value) in exchange for the printed money to keep the ledger balanced.
    With the collateral given by the Greek banks in exchange for the ELA money being mainly loans, bonds and other items that are quickly dropping in value (reaching a level of close to 0 at the 20th July) the ECB has to adjust the amount of ELA that can be received with the collateral it currently has (This is something the ECB is currently doing).
    This forces the banks to hand over more collateral or repay part of the ELA. If they can’t do either there will be a hole in the ECBs ledger that has to be filled. If the hole is bigger then the assets owned by the ECB the member nations of the Eurozone will have to pay the difference.

  18. Who Cares says

    Europe handed the Greeks an ultimatum. In the next 48 hours come up with a deal that is acceptable to us or effectively be booted from the Euro due to the implosion of the banking sector.

    It is fascinating how Europe is still trying to dictate what Greece can do.
    First it is was you bring a new proposal but don’t bother with debt relief.
    So they explode with indignation when the Greek negotiators come in without a plan since the plan(s) they’d bring with them would contain debt relief. Stupid brinkmanship on the side of the Greeks though, should have gone in with a plan containing debt relief.
    And now they are told commit political suicide by bringing a plan without debt relief since otherwise it won’t be acceptable to the European negotiators.

  19. John Morales says

    Who Cares:

    It is fascinating how Europe is still trying to dictate what Greece can do.

    Interesting phrasing, since “Europe” is actually setting conditions for its making further concessions and provide further aid and deferral of the repayment of Greece’s extant debt and arrears.

    (Seems to me that both “Europe” and Greece have their own negotiating positions)

  20. Who Cares says

    @John Morales(#21):
    They are not setting conditions for making further concessions. They made a demand, don’t bother with a proposal containing debt relief.
    So they are demanding that the Greek come with a proposal that contains only austerity measures. Which means they are still trying to dictate what the Greek should do instead of trying to negotiate.

  21. John Morales says

    Who Cares,

    They are not setting conditions for making further concessions. They made a demand, don’t bother with a proposal containing debt relief.
    So they are demanding that the Greek come with a proposal that contains only austerity measures.

    Call them demands or conditions, it remains a fact that the last extension of the ongoing bail-out was on 20 February 2015 and that was contingent too; difference then was the negotiating parties reached an accord (or, in your style of phrasing, Greece capitulated). This current crisis is because that extension has lapsed.

    Consider, for one thing, that other European economies have significant debt, too, and that the current circumstances are unprecedented and therefore decisions made now become precedent.

    The reality remains what it is, however you care to express it.

  22. Kilian Hekhuis says


    What is considered left-leaning (or socialist) in the States, is still rather right-wing in most European countries :). It’d be interesting to know where you would be on the political scale of countries like France, UK, Germany or the Netherlands (my country of residence).

  23. Mano Singham says


    I consider the mainstream European left (like British Labor Party and the French Socialists) to be pretty conservative actually. The same with Germany. Of course, there are smaller parties that are more left. I am not familiar with the various political parties in the Netherlands.

  24. Sleeper (from Sci-Blogs) says

    Who Cares #19

    Yes they absolutely can. They’re the central bank in a fiat economic system. The Euro is not tied to a commodity. When they create money they also create a corresponding debt, that’s how the ledger’s balanced. The ECB is doing €60bn a month of quantative easing until September 2016. That’s €1.1tn in total. It’s buying government bonds with money it’s creating.

    It depends what you mean by ‘has to’. The ECB may have to adjust the amount of ELA that can be received for legal or political reasons, but it’s not constrained financially. As the central source of money in the Euro zone it can keep buying Greek government debt as fast as they issue it.

  25. Kilian Hekhuis says


    We have the equivalent of British Labour (British, so with “u”! :)) party (also called, translated, “labour party”), but also “true” socialists (aptly called “socialist party”). I think you’d like the latter :).

  26. Who Cares says

    @Sleeper (from Sci-Blogs) (#26):
    Your argument defeats what you are trying to prove. To make those 60 billion they need to have 60 billion worth of bonds. Without the government selling that debt to banks, which then deposit it at the ECB there is no way the ECB could produce those 60 billion.

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