Greeks Vote No, Now What's Next?

    This is the $64 million dollar question. No one is sure. Krugman rightfully remarks on the despicable attempt by the EU to take down a democratically elected Prime Minister in Tsipras..

   The Syrzia and Tsipras haters continue to hope.

   "The government could still fail even given a strong negative vote, if it cannot secure a deal, according to Erik Nielsen, global chief economist at Unicredit."

  "Tsipras has not explained why he thinks that the creditors will now bend over and agree to hand him their taxpayers' money against fewer reforms, just because a majority of the [receiving] Greeks think that this is a good idea," Nielsen wrote in a research note."

   http://www.cnbc.com/id/102810251

   Maybe they're bullies and only respect force. This seems to be what happened to the IMF last week.

   http://diaryofarepublicanhater.blogspot.com/2015/07/the-imf-undercuts-whole-anti-tsipras.html

   I mean Nielsen seems to be really taking the comments of these EU leaders at face value rather than a bluff to crush Tsipras that has failed.

  http://diaryofarepublicanhater.blogspot.com/2015/07/a-defeat-for-eu-victory-for-european.html

  So what's next?

  "A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap."

  "But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?"

   "The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency."

    "Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma."

    Not that even if the ECB does resume normal financing there are still many questions:

   "Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth."

   "Even then there is still the need for permanent debt relief that the troika hasn't been willing to consider-though now the IMF has found religion with the Greek default, last Tuesday, June 30."

   "But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?"

    "I have no idea — and in any case there is now a strong argument that Greek exit from the euro is the best of bad options."

   That's the question the Greeks have to ask though my strong impression is they want to stay on the euro. The polls showed that the Greeks wanted to stay as part of the euro but didn't want the current offer. Tsipras' task was to convince voters that this was a vote on the austerity deal rather than the euro which he clearly succeeded on.

    Krugman argues that unless Greece gets permanent debt relief-which the IMF alone among the Troika has finally accepted-then they are better off leaving. Yes, there is pain from leaving but they've already had their financial crisis.

  "Would Greek exit from the euro work as well as Iceland’s highly successfuldevaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare."

  Again, my sense is that the Greeks still want to be part of the euro. Syrzia has expressed confidence that they will get debt relief. If they don't, however, then it's tough to argue against Grexit. Indeed, the finance minister says he's confident they can get a deal in '24 hours'-I can't tell if he's joking there or not. He certainly seems to be having fun there.

 http://www.cnbc.com/id/102810344