Now what?

I confess I'm having trouble seeing the Greek referendum result as the "triumph for democracy" that many commentators are hailing. Look at it this way: Greece lied its way into the Eurozone back at the turn of the century. On the basis of those lies, creditors were willing to lend Greece a lot of money. Then the debt became too much to bear, so the Greeks, first in electing Syriza and then in Sunday's vote, tried to weasel out of paying it back. If that's a triumph for democracy, it's a pretty scuzzy one.

There's more to the story than that, of course: there's blame enough to go round, and not all of it attaches to the Greeks. This article by Richard Gwyn, the Toronto Star's long-serving foreign affairs columnist (I think he may have reported on the Peloponnesian War) is a good place to start.

Gwyn is correct to suggest that you can't compare Greece's problems to those of Iceland a few years ago, and so the solution has to be different too. Iceland was scuppered by its own domestic banks, which exploited shockingly lax regulation to expand at a frantic pace, mostly outside Iceland -- by the time the house of cards fell apart, their Reykjavik HQs were little more than a flag of convenience.

There was a lot of pain for Icelanders after the banks collapsed -- and not a little pain for taxpayers in other parts of Europe, especially the UK, where deposit insurance had to pay out on losses sustained by individuals who had entrusted their savings to the Icelandic banks. However, Iceland had the distinct advantage of having its own currency, which made solving the problems (mainly by imposing capital controls) easier. Those capital controls will be lifted imminently, and barring any problems at that time, Iceland will return to normal international economic relations.

Greece, of course, no longer has its own currency, a fact which cuts both ways as we examine the problems there.  Most analyses are focused on the fact that membership of the Euro limits the steps that Greece can take to extricate itself from its current predicament. This is certainly true, but it's equally plausible to argue that Greece would never have been able to borrow so much if it hadn't been a part of the Eurozone -- and, as we noted at the outset, it only managed to adopt the Euro by lying about its fiscal situation.

Mark one point against the Greeks, then, for getting themselves into an unmanageable debt situation through mendacity and irresponsibility.  However, it's harder to blame the Greeks alone for the fact that they have been unable to get on top of their problems after more than half-a-decade of trying. As everyone warned at the time, the austerity measures imposed by the EU and other creditors as conditions for the initial Greek bailout were always going to crush the economy, and thereby make the debt more rather than less of a burden.

Reading the rhetoric from the Greek side in the last few months, this seems to have been the point that the Syriza government was trying to get across to the creditors.  Prime Minister Tsipras and his team have repeatedly said that Greece has no wish to default on its debt. However, the austerity imposed by the creditors in the past has only lessened the country's ability to meet its obligations, so it can't possibly make sense to double down on austerity as a condition of further help. Even the now departed Finance Minister Varoufakis said at one point that Greece did not want its creditors simply to lend it more money -- they had already loaned it too much in the past.

So where do we go from here? There were hopes that the departure of the abrasive Varoufakis might make it easier to get a deal, but there are no indications yet that Greece has much new to propose, and the creditors seem disinclined to take the initiative. Banks are to stay closed for at least a few more days, and ATMs are expected to run out of cash very soon. Any solution to the problem must involve a significant measure of debt relief or even forgiveness, but it will be difficult in the extreme to agree anything as controversial as that in the very short time that seems to be available before the Greek economy and financial system seize up entirely. Mr Tsipras may yet end up wishing that he had lost Sunday's referendum, rather than winning it so comprehensively.