Instant reactions to complex economic shocks are almost always wrong, but that’s never stopped me before. Much to my surprise, it has been reported that the No votes won by an overwhelming majority. This means:
1. The Greek government obviously cannot accept the EU deal, even with minor tweaks.
2. It’s hard to imagine the EU offering dramatically better terms, although I suppose anything is possible. The fate of Podemos in Spain depends on whether the EU caves. If they do, Podemos is the next government of Spain. If they don’t, Podemos is in deep trouble. Keep in mind that Eurozone governments are among the major financiers of ISIS. If they are willing to finance terrorists, is it really so hard to believe they’d cave in and finance communists?
3. Does the Greek government secretly want to leave the eurozone? That seems like the most plausible explanation for their erratic behavior, although I can’t be certain.
4. Even if Syriza secretly wants to leave the eurozone, they clearly prefer to stage-manage things so that it looks like they were pushed out. And if the Germans secretly want Greece out, they’d prefer to stage-manage things so that it looks like Syriza is to blame. This may take a while to play out.
5. Is it possible that Greece will remain in the euro, despite all of this? In Europe, anything in possible. Keep in mind that in macroeconomic terms “leaving the euro” means changing to a different medium of account. As long as the euro is Greece’s medium of account, it’s still in the eurozone in a macroeconomic sense. It doesn’t really matter whether the Bank of Greece no longer has a seat at the table. Thus issuing “script” won’t do much to help their labor market recover, unless it takes the form of disguised wage cuts. (Greece may join it’s neighbor to the north Montenegro in being a de facto euro member, but not a de jure member.)
6. Although I would have voted yes no, I certainly wish them well. Leaving the euro would certainly produce one undeniable benefit—more NGDP! The truly nightmare scenario is that Greece stays in the euro and becomes increasingly statist—a failed state. In my view leaving the euro with Syriza in charge is worse in the short run, better in the medium run, and worse in the long run (as in Argentina), as compared to a yes vote.
7. This slightly increases the risk of Brexit, as the eurozone will increasingly resemble a failed project.
8. European leaders have been saying a no vote means Grexit. If on Monday they are saying something different, they will look like complete fools.
This is the best one paragraph explanation of what this is all about that I’ve seen so far:
And for those in the euro, exit may not be a palliative. Spain has already improved its competitiveness through wage and price cuts. A euro exit could bring with it populist polices that hurt long-term growth. “You do not leave the euro to become a market-friendly Switzerland. You leave the euro to become Argentina,” says Jesús Fernández-Villaverde of the University of Pennsylvania.
If this spreads across Europe, you could eventually end up with a sort of (non-violent) civil war. Neoliberal northern Europe against statist southern Europe. The best way to predict global events over the past 20 years is to assume that countries will have governments that increasingly reflect their cultural characteristics. Thus as China and Denmark becomes more capitalist, Argentina and Greece becomes more statist.