Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C., and author of the forthcoming book Failed: What the 'Experts' Got Wrong about the Global Economy.
It's ironic but not surprising that the European Central Bank decided Sunday to limit its credit to Greece by enough to force the Greek banking system to close.
This has pushed Greece closer to a more serious financial crisis than the country has had in the past five years of austerity-induced depression. Why did the ECB decide to take this harsh, unnecessary and dangerous measure now?
It seems clear that the move is in response to the Greek government's decision to hold a referendum on whether to accept the last offer from the European authorities outlining conditions for continuing official lending to Greece. The financial problems and inconveniences of this week, caused by the bank holiday, are the European authorities' way of saying, "Vote as we'll tell you to, or we can make your lives even more miserable than we have been making them."
This offer included further cuts to Greek pensions, as well as regressive tax increases. As economist Paul Krugman has noted, these are conditions that Prime Minister Alexis Tsipras can't accept. "The purpose must therefore be to drive him from office," Mr. Krugman concluded.
There is considerable evidence that this has been the European authorities' strategy since the anti-austerity Syriza party was elected in January. Just 10 days after the election, the ECB cut off its main line of credit to Greek banks, even though there was no obvious reason to do so. Shortly thereafter, the ECB put a limit on how much Greek banks could lend to the government – a limit that the previous government did not have.
From the European authorities' point of view, "regime change" is the only logical strategy. They do have a nuclear weapon, which is to cut credit to Greece entirely – thus precipitating a financial meltdown that would force the country out of the euro. But German Chancellor Angela Merkel doesn't want this, and neither does her ally, U.S. President Barack Obama. So European authorities continue to take steps to undermine the Greek economy and government, hoping to get rid of the government and get a new one that will do what they want.
These European authorities had already succeeded in pushing the Greek economy – which was projected to grow by 2.5 per cent this year – back into recession. This is owing to their credit restrictions and the damaging effect of their brinkmanship game with the Greek government. Now they have gone further in order to intimidate Greek voters into voting Yes.
Officials such as European Commission President Jean-Claude Juncker have tried to convince Greeks that a No vote would be a vote to leave the euro zone. But this is not true. It could well be that a No would strengthen the hand of the government to get a better deal, given that the most powerful people in the world don't want to see an economic collapse that forces Greece out of the euro.
The European authorities are offering no future to Greece – no light at the end of the tunnel, especially for the 60 per cent of young people who are already unemployed because of their failed policies. But there are always alternatives to years of economic recession, stagnation and mass unemployment.
These alternatives aren't radical, but mostly nothing more than the stimulus policies that dozens of countries, including the United States, implemented in response to the world financial crisis and recession of 2008 and 2009. But European authorities will not allow the Greek economy to recover. The first step for Greece must therefore begin with saying No.