As an untrained observer watching events unfold in Greece from afar, it certainly appeared to me that the IMF was doing its very best to nullify Greece's government with its demands for austerity measures in a country already dealing with a deep economic crisis.
Evidently it appeared that way to Greeks, too, who soundly rejected the IMF austerity plan in favor of something else. What that something else is, exactly, is yet to be determined.
Tsipras and Syriza have won big in the referendum, strengthening their hand for whatever comes next. But they’re not the only winners: I would argue that Europe, and the European idea, just won big — at least in the sense of dodging a bullet.
I know that’s not how most people see it. But think of it this way: we have just witnessed Greece stand up to a truly vile campaign of bullying and intimidation, an attempt to scare the Greek public, not just into accepting creditor demands, but into getting rid of their government. It was a shameful moment in modern European history, and would have set a truly ugly precedent if it had succeeded.
But it didn’t. You don’t have to love Syriza, or believe that they know what they’re doing — it’s not clear that they do, although the troika has been even worse — to believe that European institutions have just been saved from their own worst instincts. If Greece had been forced into line by financial fear mongering, Europe would have sinned in a way that would sully its reputation for generations. Instead, it’s something we can, perhaps, eventually regard as an aberration.
And if Greece ends up exiting the euro? There’s actually a pretty good case for Grexit now — and in any case, democracy matters more than any currency arrangement.
More from Krugman:
What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.
This, I think, is a consequence of entering into an economic arrangement devoid of political binding. It is actually quite similar to what happened here after the Revolutionary War had been fought and won and it was becoming increasingly clear that the Articles of Confederation were a weak, unenforceable document between states operating with no larger allegiance to anyone but themselves.
Krugman also has some thoughts on a Greek Eurozone exit strategy:
[I]n any case there is now a strong argument that Greek exit from the euro is the best of bad options.
Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation.
Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?
At this point, the only thing we know for sure is that there are some angry oligarchs today.
It might also be good for us all to re-read The Shock Doctrine just to refresh memories.
