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The bear, not the elephant, in the living room

By Jonathan J. Ariel - posted Monday, 13 July 2015

Last Sunday, over 60% of Greeks followed their leftist government's advice and chose more socialism rather than more austerity. After the vote, proponents of the "No" camp bellowed it was a victory for "independence" and  shouted that Greece "will not be humiliated".

Fighting words from a vanquished people.

Germany, whose taxpayers have kept the Hellenic Republic from drowning in a misery of its own making, tried to convince Greeks that the choice was very different. It was a choice between staying in the euro and exiting from it.


The leader of the Greek Coalition of the Radical Left, the Prime Minister Alexis Tsipras, boasted that a "no" vote would give him a mandate to renegotiate the billions of euros Greece has borrowed and wants to keep borrowing. He never explained that for renegotiations to take place – let alone bear fruit - the creditors must have something new and something credible from Athens to consider. Cheap old Retsina in fancy new bottles just isn't enough.

The tragedy of last week's referendum was that the wrong question was asked.

A more informative binary vote should have been put to the Greeks. That is:

Do you want Greece to have the possibility of a sound economic future on the understanding this would require painful root and branch reforms to the Greek economy which would usher in competition, extinguish corruption, minimise government waste, jettison bureaucracies and introduce reasonable regulations?

But it wasn't to be.

Those that voted "No" want a proud and self-reliant republic but have no understanding that when Greece signed up in January 2001 to the "third European & Monetary Union Stage", independence flew out the window. Greece became part of a union where all members are subjected to a single monetary policy, which determines the value of their shared currency, and hence the foreign price of Greece's outputs.


Greece cannot devalue the currency to make itself more competitive for the simple reason that it isn't Greece's to devalue. Nor can the Greeks run bottomless budget deficits that violate the European & Monetary Union rules.

Separate - but as important - to the mammoth financial questions facing the creditors this weekend is the much-ignored issue of security.

If Greece stays in the eurozone but is irritated by the terms or if it leaves the euro or is pushed out, or for that matter is granted a creative "leave of absence with the right to return", what would this mean for Western Europe's security?

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About the Author

Jonathan J. Ariel is an economist and financial analyst. He holds a MBA from the Australian Graduate School of Management. He can be contacted at

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