When a no vote to austerity actually means yes.

I noticed the Greek PM, who initially gave the impression prior to the referendum he was willing to make some overtures to his lenders to their austerity measures, has now moved to position where most, if not all of the prior measures on that table are now accepted or are acceptable in a slightly modified version. This news initially caused world stock markets to positively move upwards in anticipation of a final settlement, only to wane as it now appears a long way off.  

The PM, it seems to me, gave the impression that a NO vote would strengthen his hand and at the same time by making a few overtures gave voters the distinct impression that creditors are being unreasonable and not responding to his offers. The vote was not as close as most anticipated, but I gather many, due to the wording, were not clear as to what they were actually voting for. The only major austerity measure that is now off the table as far as I can gather is a cut in defense spending. The other point in regard to a haircut on Greek debt is still in the melting pot, but sooner or later it will have to be considered.

There seems to be a great deal of confusion talked about the position right from the outset. The continuing theme the European Creditors are to blame for imposing austerity measures which resulted in Greece’s economy contracting by about 25% is a popular theme talked about by economists. But the reality is if you clock up debts to the extent of allowing run- away government expenditure to result in a budget deficits of the order of 12% of GDP, most of which was for consumption expenditure, you will in the aftermath risk severe contraction bringing that back into equilibrium.  That inevitably must cause a contraction in any economy in the absence of offsetting stimulatory monetary policy, which in Greece’s situation was long since exhausted as a Eurozone member. Furthermore, whether in modernity or way back to the times when communities were more in tune with nature, some semblance of balance has to be always maintained between continued sustainable available resources and those consumed. The assertion by some economists that the Greek people have not received or benefited from the continuing bailouts is another popular theme which is at odds with reality.  

If Greece had not been bailed out in the past their economy and their people would have suffered far more, as the reintroduced drachma would have devalued and ratchetted up inflation by 30-40% to reduce the countries purchasing power. Benefits across the board would have to be cut and with rapid inflation those provided would be severely devalued.  Whilst some of the funds provided did end up as financier’s remuneration the vast bulk of funds were as a consequence of prior consumption expenditure exceeding tax revenues which was received one way or another in benefits or services by the Greek people.

The idea put forward by another leading economist that the economy would quickly recover in the event of a Greek exit , based on prior empirical studies, to me seems fanciful. Rather I would suggest , this would involve a prolonged period of poverty, particularly as the countries needs new investment not likely to be forthcoming where there is little by way of viable industries or infrastructure other than tourism.

As negotiations drag on the initial euphoria and misplaced satisfaction of a NO vote only highlights the underlying frustration with Greece. What this highlights as a consequence of months of fruitless talks, is an emerging  lack of trust and a lack of reliability which makes compromise much more  difficult.
In the current talks I understand the 2 largest creditor nations, namely Germany and France are taking different approaches. France is lobbying for Greece to stay in the Eurozone, whilst apparently Germany is proposing a temporary "Grexit" which might last up to 5 years.  

Bear in mind if a settlement can finally be reached it will be Greece's third bailout in just five years. Its debt now stands at around 320 billion euros ($357 billion) – representing 180 percent of the country's annual GDP. This is clearly not sustainable.