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Tuesday, July 14, 2015

The Empire Strikes Back


By George Friedman

A desperate battle was fought last week. It pitted Germany and Greece against each other. Each country had everything at stake. Based on the deal that was agreed to, Germany forced a Greek capitulation. But it is far from clear that Greece can allow the agreement reached to be implemented, or that it has the national political will to do so. It is also not clear what its options are, especially given that the Greek people had backed Germany into a corner, where its only choice was to risk everything. It was not a good place for Greece to put the Germans. They struck back with vengeance.

 The key event was the Greek referendum on the European Union's demand for further austerity in exchange for infusions of cash to save the Greek banking system. The Syriza Party had called the vote in order to strengthen its hand in dealing with the European demands. The Greek government's view was that the European terms would save Greece from immediate disaster but at the cost of impoverishing the country in the long term. The austerity measures demanded would, in their view, make any sort of recovery impossible. Facing a choice between a short-term catastrophe in the banking system and long-term misery, the Greeks saw themselves in an impossible position.

In chess, when your position is hopeless, one solution is to knock over the chessboard. That is what the Greeks tried to do with the referendum. If the vote was lost, then the government could capitulate to German demands and claim it was the will of the people. But if the vote went the way it did, the Greek leaders could go to the European Union and argue that broad relaxation of austerity was not merely the position of the government, but also the sovereign will of the Greek people.

The European Union is founded on the dual principles of an irrevocable community of nations that have joined together but have retained their national sovereignty. The Greeks were demonstrating the national will, which the government thought would create a new chess game. Instead, what happened was ...

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