Angela Merkel welcomes Alexis Tsipras to a bilateral meeting, March 2015. Demotix/S.Struck. All rights reserved.I am a member of a small nationality: the English Europeans. Like any attractive nationality this is one of becoming as well as tradition and allegiance – a patriotism of change, not a hunched, defensive chauvinism. It means looking forward to being more English and more European as my country becomes simultaneously more attractively and less aggressively English and more profoundly and freely European; as, in other words, both sides of my nationality enhance each other to strengthen my liberty and expand my democracy in a globalizing world. 

It is a privileged nationality that has come about thanks to the creation of the EU. It means I can understand and identify with Greeks who at one and the same time want to be both more Greek and more European. Like them I experience myself as belonging to a country and continent harnessed together in a single vehicle. It is not an experience shared by most of my fellow countrymen. They are English-Britains, who even when ‘pro-European’ mostly regard the EU in an instrumental way. They experience their nationality as already fulfilled without further need for definition. For them any European claims on their identity feel like a subtraction of their nationality, more of a threat than an enhancement.

The argument with my own countrymen is not going well. Sorry, that is a classic British understatement: it is going badly. What is going even worse is the EU itself; its policy towards Greece has been atrocious and is turning the Union from a framework that strengthened the nations of Europe into one that threatens them.

Today the Greeks are voting in a referendum on their relationship to the EU. Whatever happens the poor are likely to be punished. I am going to Greece to witness and share in the immediate aftermath. Before setting out to listen to my Greek friends I decided to set down my outsider’s view.

What is the referendum about

The referendum is divisive, incoherent, ill-prepared and may lead to an outcome so close as to be unclear  - dangerous energies in a country whose civil war and military dictatorships are not tucked safely in the seventeenth century but are raw and present. Yet it has brought democracy into the chambers of the European process where I hope its unruly presence stays put. It is easy for me to say so but I welcome its taking the issue to the people. The issue of the referendum being, should the Eurozone be governed in the way it has been, or not.

My answer to this question is NO. This is how I hope the Greeks will vote. My experience of the Scottish referendum leads me to expect a YES.

On the face of it, the NO vote should storm through. The formal question is should Greece say YES to the creditors' terms for continued austerity, cuts to the pensions of the poor and no debt relief that the Troika of the EU, the European Central Bank (ECB), and the IMF put on the table as a “take it or leave it offer”. Or should they say NO so that the better terms the Troika will now offer can be agreed, now that the IMF’s judgment that massive debt relief is essential is openly on the table? And speedily agreed, according to the assurance of Minister of Finance Yanis Varoufakis.

In this official version of the choice, NO means better terms, an acknowledgement of the wishes of the Greek people, less impoverishment, debt relief and a very hard but potentially sustainable way out of the country’s economic and financial crisis. Whereas YES means embracing the Troika at its worst and carrying on the spiral of economic decomposition.

But if you read the compelling collection of openDemocracy contributors speaking their views in the forum put together by Alex Sakalis, another perspective emerges. First, the official one is neatly summed up by Dimitris Boucas:

YES means accepting the current proposal of Greece’s creditors and opening the road to more severe austerity measures with the least possible negotiating power for the Greek government.

NO means rejecting the current proposal and not condemning generations of young people to decades of austerity. It strengthens the government’s negotiating hand towards reaching a better agreement, with debt restructuring, coupled with measures for growth, always within the Eurozone.

Second, the other view is summed up by Iannis Carras (sequence slightly altered)

A NO will lead to a post-Sovietisation of Greek society. The economy will tank, hunger will become widespread, pensioners and the poor will be disproportionately affected. Violence is likely. It is thus with a sense of mourning for the Greece and the EU that are failing us that I will vote YES.

But this YES comes with an addendum: if, after a YES, the EU and the creditors do not provide substantial debt relief in return for structural reforms, thus helping the Greek economy grow, they will bear the ethical responsibility for the inability of the Greek side to live up to impossible obligations.

This view sees a NO as being YES and a YES as being a NO. It is not without plausibility. Far from a NO leading to a more honest acceptable negotiation, the EU leaders have spoken out bluntly warning that a NO vote means the EU will have no alternative but to punish the country. Instead of coming to the deal that Varoufakis promises, from which some pride and relief can be extracted, a NO vote will plunge the country into unimagined austerity. The Germans may even decide that Greece has to leave the Euro – the fact that there are no rules that allow this being irrelevant. The ECB can decline to switch on the Greek banks, Greece will have to default and then start to print its own currency. As bad, there will be no easy write-off that might permit the economy to bounce back with a cheap currency, in case this inspires other Euro members to think for themselves. Thus, it may be a NO vote means long-term subordination to a vengeful Europe intent on depressing the Greek economy, undermining, bribing and despising its officials in the process.

A YES vote, on the other hand, will defenestrate Tsipras and Varoufakis. They will be replaced, at least this is what the Eurocrats hope, with a Greek simulacrum of themselves who wear ties. Germany and Brussels cannot but then offer decent terms in gratitude to the Greek people’s act of loyalty. In particular they can’t go back on the moderate concessions they conceded to Syriza but will in addition agree the debt relief they refused the Greek leftists. Furthermore, only a YES will end the isolation from Europe that many Greeks now fear.  As Kalypso Nicolaïdis, and Othon Anastasakis put it,

“we are ready to make a leap of faith and say yes to Europe, however flawed that Europe is. We are ready to trust the other Europeans that if we vote yes today, they will take it as sign that we want to trust them again and ask them to trust us”. It is an argument that seeks to turn the table on the rhetoric of the NO voters, by claiming dignity and self-determination belong to those who say YES,

A YES with dignity can in this way be the best path to regaining our credibility lost in the rest of Europe and the world, by telling the creditors: you may be responsible for the dreadful economic recipes of the last 5 years and the current mess, you may be insensitive about our terrible economic depression, we may detest your moralising tone about who we are, but our Europe does not belong to you. Europe belongs to all of us. With our YES to Europe, we ask to become again actors of our own destiny.

On Thursday July 2, three days before the referendum, the IMF released a draft document on debt sustainability that had been drawn up the week before, on June 26. This states that a huge write down of the Greek debt is essential, precisely what the Syriza government have been arguing but which the EU leaders refused to concede. There was an intense debate on the IMF Board with its EU members over whether the report should be published, as Paul Taylor of Reuters reported the next day,

"It wasn't an easy decision," an IMF source involved in the debate over publication said. "We are not living in an ivory tower here. But the EU has to understand that not everything can be decided based on their own imperatives."

The board had considered all arguments, including the risk that the document would be politicized, but the prevailing view was that all the evidence and figures should be laid out transparently before the referendum.

In other words, they agreed it would be politicized. On the face of it, it seems to support the NO side, who have claimed all along that the debt question must be dealt with. But it probably reassures the YES side even more as its supporters can now be absolutely confident that better terms are indeed on the table for them because debt sustainability will now be part of the negotiations.

There is a comparison here with the Scottish referendum in September last year. As the vote approached Scottish opinion started to swing towards supporting independence thanks both to the energy and spirit of the YES to independence campaign, and the lethargy of the NO campaign that backed the status quo and Scotland staying in the United Kingdom. The NO side played on all the financial and political risks - including expulsion from the European Union. It was not enough, they were offering nothing positive. At the last minute a “Vow” was extracted from all the main Westminster parties to deliver considerably more domestic powers of self-government to Scotland. In effect the NO campaign turned itself into a call for change! Its final leaflet delivered through front doors across Scotland headlined: “A vote for no is a vote for change” and “When change is coming it’s not worth the risk”.           

In a similar way the argument in Greece against Syriza’s call for a NO is becoming a claim that it is a YES that will achieve the new and better terms the Tsipras government demanded, but without the risks of polarisation and awkward left-wingers in control. A strange referendum, then, when both sides want the same thing: a viable agreement with 'the institutions', to use the polite name for the troika, that keeps Greece in the Eurozone.

So what then is it about? The government says that by endorsing its rejection of an unacceptable ‘final offer’ and saying NO, an acceptable deal will be agreed rapidly, with the Greeks able to hold their heads up high, dignity renewed, despite the pain that will surely follow. The opposition, including most business interests and the media, say only the political defeat of the government thanks to a YES in the referendum will secure Greece the self-same negotiated outcome with the EU and the pain that will surely follow.

When both sides claim have the same aim it means the real issue that divides them is who will decide. And this will have far-reaching consequences. A left-wing victory would be magnificently against the odds (but then Syriza will most likely be tamed by having to implement its agreement with the creditors). A victory for the YES campaign wil defeat the far-right who also support a NO and bring about a conventional European settlement (but with Syriza having done the heavy-lifting, a new style post-social democratic party will be born to grow where it should be at the moment, in opposition).

Who is to blame

How did we (that's my European "we") get into this situation and who's to blame? It is hard not to conclude from the public evidence that the breakdown in negotiations that led to the referendum was precipitated by the EU. Of course the European political class have better access to the media and are spinning it as caused by unreliable Greeks. But it does not seem that way to me. Without getting caught up in the details, or even claiming to understand them all, here are the highlights as I see them.

On 14 June the Chief Economist of the IMF, Olivier Blanchard, set out the IMF position in a short statement headed Greece: A Credible Deal Will Require Difficult Decisions By All Sides. Referring to changes in the situation, he wrote:

The offer made to the Greek government last week reflected these considerations and these trade offs.  It proposed to lower the medium term primary budget surplus target from 4.5% of GDP to 3.5%, and give Greece two more years to achieve that target—so the target for this year was reduced to 1%—and it asked for a more limited set of reforms.

The primary surplus is money raised and taken out of the economy by the government to be used to pay back its loans. What is not invested back into the economy weakens growth and lowers incomes and goes by the name of ‘austerity’. The argument against it is simple: that what both Greece and its creditors need is growth, therefore extracting a primary surplus which shrinks an economy is counter-productive especially when it has shrunk so much. Blanchard shows that to some degree the IMF took this point on board by lessening its demands. Blanchard continues,

For a deal along these lines to be effective and credible however, two conditions must be satisfied.

On the one hand, the Greek government has to offer truly credible measures to reach the lower target budget surplus, and it has to show its commitment to the more limited set of reforms. 

He then sets out the need for “comprehensive reform of the value-added tax (VAT)… and a further adjustment of pensions”.  He explains why they need to “insist on pensions” saying that the changes they want can protect “the poorest pensioners” and adds, “We are open to alternative ways for designing both the VAT and the pension reforms, but these alternatives have to add up and deliver the required fiscal adjustment”. Blanchard then makes a crucial further stipulation,

On the other hand, the European creditors would have to agree to significant additional financing, and to debt relief sufficient to maintain debt sustainability.

In other words there has also to be debt restructuring or reduction (a haircut) or both, as well, otherwise the tough package will not lead to a sustainable route out of the mess. Hence the words in the title: “difficult decisions by both sides”.

The Syriza government' s response was to come up with alternative ways to achieve a budget acceptable to the creditors. For the argument over pensions see the document presented by Varoufakis to the Eurogroup, posted on his blog and published in openDemocracy. But the critical point is that the Greek government accepted in principle the terms set out by the IMF for the creditors. As the Financial Times reported on 26 June this can be seen in the eight-page Greek government document leaked to them that was presented to the creditors on the 22 June. This opens with a commitment by the Greek government to, “A new fiscal path... premised on a primary surplus target of 1, 2, 3, and 3.5 per cent of GDP in 2015, 2016, 2017 and 2018”. This is as close to capitulation as you could want and signals an agreement by Syriza to continue with austerity - an abandonment of its central electoral appeal, that it could persuade the Europeans to stop squeezing money out of them until they achieved growth.

According to a careful analysis of the negotiations by Landon Thomas in the New York Times the initial response to the Greek document was positive. In Brussels “The Greek team was elated. For the first time, the Greek numbers were adding up”. The next day their optimism evaporated, it was returned covered in red re-writes especially on pensions. They would have to compromise further. But Tspiras and Varoufakis concluded that,  “Their only chance… was to push Europe hard for some flexibility on debt relief because without that, their plan had no chance of making it through the Greek parliament”. And not just the parliament. There was no point in such an agreement without a parallel one to reconfigure the country’s un-repayable debt. Unless this became sustainable there would be no large scale investment, no growth and no escape from their economic disaster.

Thomas’ account of the meeting is gripping. The Europeans recoil in distaste from the Greek Finance Minister’s requests to consider the deb question. In what seems to have been a cross between the Mad Hatter’s Tea Party and an audience with the Red Queen, Europe tells the Greeks to shut their eyes and believe in impossible things. They resisted, here is how the Times report concludes,

Mr. Varoufakis persisted on the issue of Greece’s staggering debt load [and turned to] Christine Lagarde, the French director of the I.M.F….  “I have a question for Christine, Mr. Varoufakis said to the packed hall: Can the I.M.F. formally state in this meeting that this proposal we are being asked to sign will make the Greek debt sustainable?”

“Yanis has a point”, Ms. Lagarde responded — “the question of the debt needs to be addressed”. But before she could explain, she was interrupted by Mr. Dijsselbloem. “It’s a take it or leave it offer, Yanis”, the Dutch official said, peering at him through rimless spectacles.

In the end, Greece would leave it.

What else could Greece do? The IMF deny that Lagarde's words are quoted accurately. But as she swerved around the question and Dijsselbloem closed down the exchange, she knew that her own IMF draft report on the sustainability of Greek debt, finalized that very day, spelt out the need for massive debt relief of over €50 billion.

They all knew in principle anyway. For it had been signaled by the IMF's Chief Economist in his warning that there had to be difficult decisions by both sides.

Paul Mason got an excellent, 15 minute, robust interview with Varoufakis. Mason put it to him that they had effectively agreed to the creditors' terms, why then had they walked out and called the referendum when the differences were so minor. Varoufakis swallows when he acknowledges their capitulation but is clear about the decisive issue that determined the breakdown, “Two words: debt restructuring”. He even emphasises the point that Syriza are not themselves asking for a haircut on the lines the IMF recommend, simply restructuring so that the debt becomes sustainable – without which he convincingly shows the country cannot grow.

The European leaders thought they had trapped the Greek leftists. They had extracted a serious programme (at least on paper) of institutional reform and modernisation; they had gained agreement to continued austerity via an annually rising primary surplus; they had successfully insisted on painful pension reductions. Then they refused to offer any debt relief, which would have made the package one Syriza could advocate as creating a sustainable outcome. And not just advocate. Without it the package made no sense and simply stored up further disaster. It would have been reckless and rotten to have signed it. It was shameful for the Europeans to have advocated it without the debt relief that could make it work. The Greeks should be proud that their government did not bend or break. Instead, they sprung the trap, and they called the referendum.

Who should take responsibility personally?

If the Europeans are responsible for the breakdown, thanks to their irrational and dishonest refusal to countenance debt restructuring as part of the package, thus undermining its credibility, who is responsible for this European policy?

The answer seems to be Angela Merkel. The night before he decided on the referendum, Tsipras “had asked Chancellor Angela Merkel of Germany about including debt relief with a deal, only to be rebuffed again”, according to the New York Times. (This was it seems after Varoufakis had been told to take it or leave it without debt restructuring.)

I have always liked Angela Merkel for not being like Thatcher. She is not bossy or self-righteous in public, takes her time and seeks consensus and as a result seemed to build a self-confident country rather than a hysterical one puffed up by Westminster bluster. But after reading Der Spiegal writers' Peter Müller and René Pfister devastating critique of Merkel’s infectiveness, capacity for drift and evasion, I am not so sure. They write,

She could have offered Greece a safe and supported path out of the euro zone. That is the course of action that Finance Minister Wolfgang Schäuble has supported internally for years. She could also have offered Greece a debt haircut. Had she done so at the right moment, she could at least have prevented the radicalization of Greek politics. None of these options would have been free of risk. They would have required courage and money, and they would have opened up Merkel to attack. And that is something she didn't want. So she hid behind the troika, behind the hated technocrats, thereby accelerating the rise of Syriza. Indeed, Tsipras is, to a certain extent, a product of Merkel's vacillating leadership style.

The result has been to divide Greece, open up internal European policy to the United States, and in the end divide Europe itself. Last Monday, according to the Spiegel team, “Merkel stood in front of a blue screen in the lobby of the Chancellery and uttered a sentence that typifies her European policy. She was discussing the question of whether a "no" vote by the Greeks to the creditors' reform program was tantamount to a "no" to the euro. Instead of saying "yes" or "no," she said: "I will say quite openly: I am divided on this issue." If she does not know, how are the Greeks to be expected to know the answer to a question that has a huge impact on how they vote?

There is also what seems to be German indifference to their own responsibility for the deeper causes of the Greek crisis. They not only helped to permit it, they actively exploited the weak, clientelist corruption of the Greek state they now rile against. “Once, during a flight”, Spiegel reports of Merkel, “she was suddenly gripped by a laughing fit. She said that the Greek government was refusing to pay the bill for German submarines it had purchased. Their justification was that the subs were crooked. "Crooked!" Merkel said as tears of hilarity rolled down her cheeks”.

But what is so funny? A well known, very experienced international financier once told me, “Germans think corruption is taking bribes not giving bribes”. This is the real joke. The irritation that the European leaders feel as they bridle at the ‘undiplomatic’ language of the Syriza negotiators and the claims that their 'undiplomatic style' has isolated Greece from Europe goes back to Merkel and Germany's wealth. No one in the EU is going to support the Greeks against Germany by blaming Berlin. If Merkel finds you 'difficult' this means you are 'isolating yourself from Europe'. But it is surely German procrastination and profiteering that bears the greatest responsibility for the emiseration of Greece and the appalling condition of European politics.