On Sunday, Greek voters stunned Europe by voting in overwhelming numbers to reject the final offer from Greece’s creditors on the terms of a possible new rescue package. That package had in any case already been withdrawn, making the Greek plebiscite equal parts historic and incomprehensible, especially given the expressed desire of most Greeks to remain in the Eurozone, even as they cast a vote that European leaders explicitly defined as a vote to leave.
The results of the vote gave Greek Prime Minister Tsipras and Finance Minister Varoufakis what they said they needed–a powerful mandate from the Greek electorate to negotiate from a position of strength, based upon a clear national rejection of future austerity. To make things even more confusing, Varoufakis had threatened to resign if Greece voted to accept the creditor’s expired plan. So once Greeks rejected that plan, Varoufakis…resigned.
For months, European finance ministers were treated to lectures from Varoufakis, an academic economist and expert on game theory. At one point, the Greek Finance Minister commented, “If only the other side had a competent game theorist, they would already have accepted our position.” In his understanding of the “game” being played, Greece held all the cards, despite having fraudulently qualified for Euro membership, failed to fully implement two prior reform agreements, and with the Greek banking system on life support and operating on strict capital controls.
Over the next week or two, we’ll see if Varoufakis was visionary or delusional during all of those contentious months of unproductive negotiation. My own belief remains that there is no prosperous future in an ever-larger public sector, a less flexible labor market, and amid endemic corruption. Maybe I am wrong.
My read remains that, unless France can persuade Germany to agree to never-ending subsidies for Greece, the problem for Europe’s leaders will shift from how to keep Greece in the Eurozone to how to manage its exit. Will they be able to avoid a failed state within continental Europe? Let the games continue.