Dumb and dumber: How Europe turned a Greek crisis into a calamity

Most books on the subject instruct people on how to control a crisis, rather than make one worse.

But if there’s ever a need for the latter, Europe’s officials could easily write it: They took a dilemma, and made it a disaster.

It’s hard to put the blame on any one party to the Greek crisis, but it wouldn’t be wrong to blame just about everyone, from the die-hard creditors to the young government of Prime Minister Alexis Tsipras.

A defiant Mr. Tsipras, his Finance Minister Yanis Varoufakis and his Syriza Party colleagues knew they were staring down the barrel of the gun and were going to have to give way to the demands of the lenders. To be fair, they gave some ground.

The creditors, led by the give-no-ground International Monetary Fund, knew what they were facing when Mr. Tsipras swept to power vowing to ease years of harsh lender-imposed austerity that has helped drive unemployment to a staggering 25.6 per cent in Greece, where fully half of the country’s youth can’t find work.

The years of trouble in Greece entered a new phase beginning late last week, when the government said it would hold a referendum this weekend on the creditor demands, which is effectively a vote on the European monetary union, and then shut down its banks and unveiled capital controls.

The European Central Bank, in turn, chose not to boost its backstop of Greece’s commercial banks via its emergency liquidity assistance, or ELA, program.

Here’s how the week played out, in the words of those who have followed this crisis closely. Note who they blame, and why.

Sunday afternoon

“Tsipras is offering the Greek people a referendum next weekend to decide whether to accept a bailout proposal that expires in the middle of this week. Go figure. He recommends rejecting it, so if the people say they want to accept austerity, they may need someone else to deliver the terms of it.” Kit Juckes, chief of foreign exchange, Société Générale

Sunday night

“The Greek debt crisis really is a ‘crisis’ now.” Société Générale’s Mr. Juckes

Monday morning

“There seems a strong disconnect between remaining in the union with Tsipras and Varoufakis providing direction and the EU providing any aid, which is of course the area we most need to see a new proposal re-established.” Chris Weston, chief market strategist, IG

“By not extending the existing bailout program by a few more days beyond June 30, and withdrawing the deal on the table, in what can only be a fit of pique, they have set events on a course that can no longer be controlled, and opened up the prospect of a ‘no’ vote, by way of reinforcing the narrative of an EU accountable to no one but itself ... It is very easy to blame the Greek government for where we are now, but the creditors behaviour has also been lamentable, notably the IMF who bent their debt sustainability rules to keep the euro intact, instead of insisting on what was best for Greece and its economic recovery.” Michael Hewson, chief market analyst, CMC Markets

“As the ECB keeps the ELA unchanged, Greece is facing further agony in severe illiquidity conditions ... What the EU has not understood is that asking the same question several times would not change the answer. Greece does not want to pay debt by debt ... It’s time to see if tightening the rope around around Greece’s neck will do.” Ipek Ozkardeskaya, London Capital Group

“Athens has been racking up a tab at the last chance saloon for several years, and now it’s time settle up ... One could argue that the creditors are holding the country to ransom by not increasing the financial assistance to Greek banks, and therefore forcing their hand in the up and coming referendum. However, one could also argue that Athens’ government is gambling with the country’s future in the hope that the creditors will be the first to blink.” David Madden, market analyst, IG

Monday afternoon

“Considering that both Greece and its creditors ultimately want the same thing – Greece to remain in the euro zone – their inability to reach an agreement is all the more staggering. What has left traders even more perplexed is the decision of the ruling Syriza party to hold a referendum on a proposal that will have been removed from the table before voting even starts. The ability of the average Greek citizen to fully comprehend these two highly technical documents is unlikely and this action smacks of Syriza shirking its responsibilities and passing the buck onto the Greek population.” Alastair McCaig, market analyst, IG

Tuesday morning

“EU Commission President [Jean-Claude] Juncker strayed a little too far into the realms of bad taste yesterday, urging the Greek population not to commit suicide by voting No, which in a country that seen suicides soar as a result of EU policies was crassly insensitive, and could well turn out to be a massive own goal, if the vote is indecisive. Maybe that explains last night’s late move to make a fresh attempt at trying to reach a deal by the EU Commission president, but in any event the deal was rebuffed by the Greek PM.” CMC’s Mr. Hewson

“The bank holiday and capital controls put in place until after Sunday’s referendum are indeed inflicting hardship on the people of Greece (and apparently tourists as well), with both the government and creditors quick to point the finger in hopes of garnering support. Greek PM Tsipras has remained defiant and has boldly suggested that Greece will not be kicked out of the euro while European Commission President Juncker has said that a No vote on Sunday essentially means the Greeks are saying no to Europe.” Carl Campus, senior economist, BMO Nesbitt Burns

“The Greek referendum is on the horizon, and a ‘no’ vote would essentially mean an exit from the euro zone. The people of Greece are in a bind. Either they vote Yes and accept austerity or the banks may stay closed for a prolonged period. Dealers are protecting themselves against a possible default, but deep down there is a sense that some sort of compromise will be reached before the deadline - it’s the euro zone way.” IG’s Mr. Madden

Tuesday afternoon

“Greece has asked for a two-year extension [on its bailout], but this would need approval from Germany, and jolting German MPs out of their afternoon naps is unlikely to win Athens many friends.” Chris Beauchamp, senior market analyst, IG

“Greece has requested a new two-year bailout program ... so an extraordinary eurogroup teleconference has been set up for ... tonight to discuss it. Given comments from Germany’s Angela Merkel that there will be no more developments on Greece today, chances of a loan being signed off are low. Even more unlikely is that a law could be drafted and passed in six euro zone parliaments before the IMF payment is due five hours later.” Jasper Lawler, market analyst, CMC Markets

Yesterday morning

“The delayed nature of implementation of reforms has been a major stumbling block in negotiations between this Greek administration and its creditors in the past, so it’s important to reserve judgment on the reasonableness of the new proposal one way or the other. It is written in the language of European bureaucratic negotiations and thus lulls one into a sense of its reasonableness – it’s not clear however that European negotiators will see it the same way.” Derek Holt, Frances Donald, Dov Zigler, Bank of Nova Scotia

“Overnight PM Tsipras gave an address to the nation. While there had been some unsubstantiated talk of possibly cancelling the referendum, Tsipras confirmed it will go ahead and repeated the government’s support for a No vote. Elsewhere the euro group said there will be no talks with Greece until after the vote and the ECB confirmed ELA has been maintained at its current level as expected.” Elsa Lignos, senior currency strategist, Royal Bank of Canada

“There are rumours that the July 5 referendum may be cancelled, or that PM Tsipras, who was formerly encouraging a no vote, might be turning favourable for a yes vote as the growing anxiety on streets and the tightening rope around people’s necks - mostly due to financial restrictions at micro levels - indicates that a Grexit would only worsen the economic conditions. The turmoil in Greece may well push the majority to accept the bailout and remain in this infernal debt swamp. Questions will abound as to whether Tsipras even planned to hold a referendum or if it was a bluff that failed to land as expected.” London Capital Group’s Ms. Ozkardeskaya

Yesterday afternoon

“Ultimately, the Greeks decided to vote for a party which fooled them into believing a solution without austerity existed in the euro zone. This weekend will give a chance to respond to the real question, and that is whether euro zone austerity or a Drachma default is preferable. Unfortunately neither path seems easy.” Joshua Mahony, market analyst, IG

This morning

“Yesterday was a spectacular day for Alex Tsipras’s political flip flopping, in the morning appearing to have yielded to most of Greece’s creditors demands, only to turn around later and tell his people to tell the very same creditors to get stuffed and vote no in Sunday’s referendum. Whether Alex Tsipiras is a master strategist or a master obfuscator one cannot tell, but the creditors have had enough and broken off talks until after the referendum.” Jonathan Sudaria, night dealer, London Capital Group

“Some of the more cynical market participants have suggested Alexis Tsipras was always gunning for a ‘Grexit,’ but he needed to be forced out rather than walk away. This clearly hasn’t played out in that vein, although euro group president Jeroen Dijsselbloem has shown huge frustrations with Greece’s tactics and the relationship between all involved is clearly very poor.” Chris Weston, chief market strategist, IG

“Yanis Varoufakis is spicing it up a bit with shades of inner party turmoil. He said this morning that he’ll quit as finance minister if there is a ‘yes’ vote, though I don’t know why that’s much of a surprise. He also said he’d ‘rather cut my arm off’ than sign the deal that is no longer a deal and actually never was, but who’s sweating the details. Varoufakis also noted ‘We desperately want to stay in the euro’ but it’s not clear to us what he meant by ‘Maybe we’ll change the configuration of the government because some of us will not be able to stomach it.’ Who is we, and what is the threat here in the event of a ‘Yes’ vote?” Derek Holt, vice-president, Scotia Economics