The world was rattled this week by the busted stock market bubble in China and by the "no" vote in Greece last Sunday against austerity policies aimed at reducing the country's unpayable debt. Yet, by week's end, Prime Minister Alexis Tsipras appeared to cave in and say "yes" to the very austerity measures voters had rejected in return for a fresh $59 billion bailout package. After $3.2 trillion of value was wiped out by midweek, the uncharacteristically uncertain hand of the Chinese authorities intervened to stop the crash in a stock market they had cheered to ever greater heights over previous months. Meanwhile, the leaders of the BRICS countries met in Russia to bolster plans for their New Development Bank -- which rivals the World Bank -- and declared they would coordinate policies to keep their economies stable amid all the turmoil. Mohamed El-Erian, one of the most influential voices in the global bond market, writes that the link between the Chinese and Greek crises is the stimulative policies of central banks around the world that have led to a debt buildup and created a gap between the inflated value of financial assets and the real economy. (continued)
The drama that played out in Greece this week is of historic importance. What is at stake goes well beyond the future of the eurozone. It is the very essence of the great postwar civilizational compact that brought unprecedented prosperity and political stability to Europe. For it is the repeal of the understandings, principles and sense of comity associated with that project that is the clear target of the financial forces that control the continent's economic affairs. Alexis Tsipras dared to reject an ultimatum whereby his country would be relegated to a permanent condition of debt servitude or thrown to the wolves of the untamed financial markets. The game is an unsavory one whereby the Troika extract anything of value and transfer it to the banks and hedge fund speculators who made spectacularly reckless loans to previous, compromised government leaders. The resistance to that fate by a government that has received a mandate from the electorate is deemed illegitimate.
ATHENS -- Tsipras can become a leader of stature and take the deal and side with the vast majority of Greeks on either side of the "Yes"/"No" divide to whom he has promised to remain in the euro and undertake the reforms Syriza has resisted. Alternatively, he can live a short moment of glory as a revolutionary by siding with a small minority of the "no" camp and turn the country into a failed state run by a new set of authoritarian oligarchs.
The Greek debt crisis is a collision of two seemingly incompatible necessities. One is to put the Greek economy into a position for long term health; the other is to keep it from expiring in the short term. If these are to be reconciled, the players in Europe need to think outside the box, rather than retreat into bluster, blame, and the repetition of old positions.