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When the people of Greece go to the polls on Sunday to decide on their economic future, they're going to face a really difficult choice. They're being asked to decide whether to accept European demands for further austerity. If they reject those demands, they're likely to be forced out of the euro altogether.
We're torn on how Greeks should vote, because all of their options are bad. Either option is likely to lead to more economic pain, and there's a lot of uncertainty about the long-term results of either decision.
But we thought it would be interesting to write what we felt were the strongest arguments on each side. Matt Yglesias wrote his strongest case for a "yes" vote, while Tim Lee wrote the case for voting "no." But neither one of us is sure that we picked the right side.
The best case for a "yes" vote on the Greek referendum is simple: Germany and other major European states will want to make a Greece that votes "yes" look like a success. They'll want to grind a Greece that votes "no" into the dust. And they'll have the power to do.
The truth is that no matter what Greece does, Greece is still going to be a relatively small, relatively poor country with little leverage against either its larger, richer, and more powerful European partners or the financial markets. What those partners want Greece to do is to commit to staying on the euro, commit to promising to run modest but meaningful primary budget surpluses, and commit to pursuing a menu of "structural" reforms of its economy.
But if Greece doesn't do that, then what those partners will want to do is make an example out of Greece to ensure no other Eurozone member ever dares to consider following their lead.
The European powers-that-be have strong incentives to make a "Grexit" as painful as possible. If Greece experiences rapid recovery post-eurozone, that will make the Eurozone project look misguided and call the continued membership of Portugal, Spain, and other states into doubt. That would have negative consequences for the citizens of those countries, while also making politicians in Europe's most powerful countries look ridiculous.
It's true that Greece would be better off today if it had never joined the Eurozone. But as Greek Finance Minister Yanis Varoufakis himself argued back in 2012, "while almost everyone would prefer Greece to have been outside the eurozone, the actual cost of severing Greece will prove equal to that of dismantling the eurozone itself painfully, slowly, catastrophically." Varoufakis' argument at the time was that Greece should therefore default without leaving the Eurozone. This is a perfectly fine idea for Greece, except that Greece's European partners have made it clear that they won't stand for it. If Greece defaults, the European Central Bank will stop providing the Greek banking system with the euros it needs to operate. In that case, the Bank of Greece will need to provide them with some other currency and Grexit will be a reality.
But the terms of the departure will be messy and difficult for Greek citizens. They will receive no leniency in the treatment of euro-denominated debts that they owe to foreigners, and little cooperation in setting up clearing systems for international financial transfers. Rightly or wrongly, Greece will be treated as a pariah that chose to isolate itself from the continent's financial and monetary systems.
If Greece votes "yes" the path ahead is by no means easy but it is easier.
It starts with the fall from office of the current Syriza-led government, whose high-stakes gamble that it could extract better terms from Europe has utterly failed. It will probably be replaced by a new version of the old mainstream coalition that preceded it. That new coalition, by reaffirming its commitment to groveling and doing what Europe wants, can begin to rebuild a little of the good will that Greece has lost during the Syriza months. That won't lead to major concessions in the short-term, but it could lead to more leniency in the months and years that come.
None of Greece's current options look very attractive, and not much about the situation in which Greece finds itself is totally fair. But the best thing Greece can do for itself is to stop worrying about things that are out of its control, and recognize that going along to get along is more likely to work than any of the alternatives.
