Juan Ignacio Sanz (ESADE): "It was logical that Minister Varufakis would resign"

"It was logical, after all the tussling, that the Greek finance minister, Yanis Varufakis, would resign; he was never a loose cannon, just a provocateur. It’s time for a reshuffle and a new era." This is one of the conclusions drawn by Juan Ignacio Sanz, associate professor of banking and securities markets at ESADE Business & Law School, regarding the results of the Greek referendum. For Sanz, the victory of the "No" vote has three different readings: "political, economic and geostrategic". "From a political point of view, it is a resounding success", Sanz noted, "both domestically and at the European institutional level. However, from an economic perspective, that success is not so clear. Greece’s current situation depends less on politics than on the country’s financial capacity." "You don’t gamble with people’s bread and butter", he continued, noting that the solution in this case "does not depend on the Troika, but on Draghi, and on whether or not new temporary financing channels will be opened, because, if they are not, there will be an absolute collapse." Finally, the ESADE professor spoke of the geostrategic consequences. "This is when the US comes in and urges the ECB to find a solution, because Greece is vital to American interests and, thus, to NATO’s."

The theory of moral hazard

With the ball now in the ECB’s court, Sanz warned of the potential unfairness of the decisions it might make compared to those it took with Ireland, Portugal and Spain. "The issue of moral hazard comes into play. What do you do with a state in breach? Do you protect it and restructure its debt? Imagine what the countries that have already been bailed out would think if Greece were allowed to simply ignore the conditions imposed on it." "Of course, the real problem", he continued, "is not whether it pays now, but the fact that it lacks the capacity to generate resources." "The Greek economy has shrunk 25%. It needs something more than window dressing or a fresh coat of paint. It needs major structural reforms and a modern tax system", he explained.

In this regard, the ESADE professor underscored a little-discussed aspect of this issue: "If you talk with Central European and Nordic investors about Germany’s demands, about austerity, they’re starting to get tired, really just fed up with all the dead-end bickering." "There is a serious risk of fracture between Northern and Southern Europe", he noted.

Spain, three years on

Although the initial reactions of the stock market and risk premium are not encouraging, Sanz acknowledged that the situation for Spain is not the same as it was three years ago. "The ECB has since been endowed with a series of economic and financial instruments that, in addition to protecting Greece, set up a firewall that protects and guarantees European countries’ debt." "It won’t be able to prevent turbulence, but it can keep the situation from reaching the same high levels of tension as three years ago, when Spain’s risk premium climbed to 650 basis points", the ESADE professor concluded.