ηλεκτρισμένη ατμόσφαιρα πριν το ξέσπασμα

The calm before the storm can be very loud, at least for those who can hear. There has been a lot of chatter in the last weeks, and it came to a crescendo in Washington, DC, at the occasion of the IMF meeting. Mario Draghi stressed the widely spread view that the Eurozone today is much better prepared for a Greek exit crisis then it was in 2010 or 2012. And he made clear that the ECB would be willing to make use of its whole arsenal. Still, he admitted, that a Greek exit would lead the Eurozone into unchartered water. German Finance Ministyr Schäuble made in a door-to-door event with his Greek counterpart Varoufadis at the Brookings Institution clear that the currently held back funds will not be freed unless Greece surrenders, and surrenders totally. In his ope-ed in the New York Times he gave a impressive confirmation of his (and the German coalition government’s) economic orthodoxy when he argued that the whole rational of austerity is about regaining trust of investors and consumers. The crisis of the Eurozone, so his analysis, ‘was first and foremost a crisis of confidence, rooted in structural shortcomings….The cure is targeted reforms to rebuild trust..” One may think that those are words of a trained lawyer whose most closest aides are of similar making. However, not only is this diagnosis supported by a small but influential group of US-economists; more so, this is the mainstream thinking of German economists.

To ask a bloodless economy and government to achieve a primary budget surplus of 4.5% of its GDP is not only ridiculous in itself, it is also destroying its own rational: This quantitative equivalent of structural reforms would further deteriorate Greece’s economy, and not at all generate trust. On the contrary, it isn are to expect that the result would an acceleration of capital flight. In this regards, Yanis Varoufakis has a strong point not to sign up on reforms that would result in such a primary budget surplus. On the other side, it is obvious and only correct that the Greek government only can expect concessions from its creditors if they make sure that they can deliver on reforms. This includes a total makeover of the Greek tax state as well as policies to radically strengthen incentives for the working population to participate in the formal labor market. Yet, all this needs time, besides political willingness and the ability to actually change things.

Time is of essence and in scarce supply. It is not no big help if the cut-off date for Greece’s fate in the Eurozone is getting permanently shifted, from the April 24th meeting to the mid-may meeting. Both sides may seem actually love their game of chicken. Yet, it is losing its entertaining power, also because both sides insist on their positions on and on.

What makes the silence so loud? It’s the official silence about Plan B. What exactly would and should happen if Greece defaults? If the Greek coalition government default on it s public servants and citizens, its time will run up quickly. They may seriously plan to pay them with IOUs (I own you paper claims) as some US states did in the past. This would only work, however, if citizens would have the actual trust that things improve and that the can exchange IOUs into either valid money or into goods and services. Running a whole economy on IOUs over a longer time period may be difficult, though. At the end of the day IOUs are promises to pay, and this means to pay with stable money that is being universally accepted. IOUs are a form of insular money that is not accepted outside its domain. Whether Greek citizens would be willing to accept this money over a longer period can be questioned.

If the Greek government would default on its external debt, they would have to decide about a hierarchy as not all external debt are equal. Defaulting on IMF debt may not be the best idea and this may also be true for ECB debt. Whatever choice the government would make would come with the implication that the ECB by law would no longer be allowed to refinance the Greek banks. In order to avoid a capital flight the government would have to introduce Cyprus-like capital controls. At the same time it needs to make sure that bank runs are prohibited. A Greek default, however, does not imply a Grexit, at least not automatically. Such a situation may be the ‘unchartered waters’ Draghi was talking about. We know from economic history about defaults but we have not had a default in a monetary union. From a Treaty perspective there seems to be no way to make Greece go. This is a decision to be made by the Greek government, and also here we would be in unchartered waters as the Treaty founders lost no syllable about procedures for a country that wants to leave the Eurozone.

An increasing number of observers seem to see a Eurozone without Greece as a currency union of increased stability. This is a mistake, though. Great would make the Eurozone to a zone of fixed exchange rates, and thus to a highly fragile mode of cooperation that is open for speculative attacks. It is nonsense to fabulate about the increase of resilience of the Eurozone due to the past reforms. As a matter of fact, Grexit would make the Eurozone to a zone of potential instability and political horse trading. The EU had this before, and it ended as we know in a disaster.