The Greek vote could leave Europe with a very hard choice to make

Alex Tsipras may look like he doesn't know what he's doing with the Greek referendum. But he's playing a very clever game, says John Stepek.


Alex Tsipras: playing a very clever game

That Alexis Tsipras, eh? What a character.

First he calls a referendum. Then yesterday morning, he gets markets all excited by apparently U-turning and promising a new deal with Europe.

Then, come the afternoon, he's standing up in front of the Greek people and urging them to vote no' to austerity in the forthcoming Greek referendum.

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Has he completely lost it?

Tsipras isn't as unhinged as he looks

I'm not convinced that Tsipras' strategy is as mad as it looks. Self-serving and arguably not in the best interests of his people, yes. But not mad.

Tsipras and Syriza came to power with the following remit: stop the austerity, but stay within the euro.

Those two aims are not compatible. At least, not without a much more forgiving attitude from the rest of Europe.

So Tsipras's problem is that he has no leverage and no way to get what he wants. On the one hand, no one else will bail Greece out. (Oh, I'm sure Russia will queue up to offer relief and succour if Greece leaves the euro but not before). The only people willing to offer Greece money and potentially even debt relief are the ones who are demanding reform in return.

And he can't tell Europe to take a running jump and repay the loans in drachma, because he knows that the Greek people still want to hang on to the euro, practically regardless of the cost.

So he really only has one decent card in his hand. He doesn't know for sure how much value it has, but he might as well play it for all it's worth.

It's this: no one in Europe wants to be the one to pull the trigger on ejecting another country from the eurozone. No one wants to take responsibility for an event that might just one day be viewed as the moment that the European Project died.

And if you look at it that way, his latest stunts make complete sense.

Look at the wording of the Greek referendum, and the way that Tsipras has presented it to the people. The rest of Europe wants to paint it as a referendum on whether or not to leave the euro. But like it or not, they're not running the vote.

The referendum question itself doesn't even mention the euro. So as far as the Greeks are concerned, this is not about leaving the euro. It's about whether or not to reject the latest deal. Tsipras is telling them that a no' vote means they'll get a better deal and they'll still be in the euro. So why would you vote yes'?

Can Europe really pull the trigger on Greece?

But the real genius here is that it leaves the tough decisions with Europe. If the Greeks vote yes', then I wouldn't hold my breath for Tsipras to resign, despite his hints that he would. Instead, I'd expect another lengthy phase of bad-tempered negotiation and confusion.

And if Greece votes no', the ball is in the eurozone's court. They either make a better offer, or they pull the plug on Greece, and effectively eject it from the eurozone. Either way, Tsipras wins. If the deal is sweetened, it means that Europe blinked first.

And if Europe doesn't buckle well, Tsipras can say that he didn't lead Greece out of the eurozone it was kicked out by unreasonable creditors. And then he gets on with the business of building a Marxist utopia or whatever on the back of the drachma, with the political and financial aid of whichever predator states feel like expanding their spheres of influence to include a sunny piece of global real estate that's conveniently situated for the Balkans and various sea trade routes.

So it's all right for him.

A no' vote would make the chances of Grexit much higher

What happens next? If there's a yes' vote on Sunday, I'd expect to see the markets rally. It would certainly be a step away from Grexit' and you'd think the rest of Europe would welcome the result with open arms. The crisis wouldn't be over there might even need to be another election - but if the rest of the eurozone is smart enough to start playing nice right away, then the end could be in sight.

If there's a no' vote, markets won't be happy about it. It doesn't mean instant Grexit. But it does mean a whole lot of mudslinging, posturing, and, chances are, an eventual return to the drachma.

At the end of the day, the Greek economy is running out of cash. They need a medium of exchange. Once there's a semi-official system of IOUs floating about in place of cash, you're well on the way to leaving the euro.

What about your investments? My own feeling is that it's the longer-term impact of a Grexit that matters, rather than the short-term effect. In the short term there would certainly be panic and buying opportunities, but the question of a wider panic ultimately boils down to what the European Central Bank might do to offset it.

So I'd suggest sticking to your investment plan, whatever it is. You can't predict the outcome here, and other than being prepared (hold cash) and insured (hold gold), anything else is a gamble.

And if you don't already have an investment plan, you should take a look at something we've put together for MoneyWeek readers.

Merryn and I reckon that if you want to grow your wealth over the long run without sweating too much over your portfolio, we've come up with a strategy you'll like. It's proved very popular with our readers already if you haven't had a chance to find out about it, take a look now.

John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.