Sunday’s ‘No’ vote will not stop the country’s descent into chaos
As thousands of young Greeks were celebrating last Sunday in all-night jubilations and street dancing the country’s resounding rejection of creditors’ bailout demands, in a nationwide referendum, where the “No” vote attracted more than 61% of votes cast, economic conditions continued to deteriorate. With the banks closed since June 29, and likely to remain shut for the foreseeable future, capital controls in place, thousands of tourist cancellations and the market idled due to lack of cash. A situation which will progressively get worse as bank liquidity goes to zero and ATMs will not even dispense the allocated sum of 60 euros per day per person.
The heavier than expected victory for the “No” campaign against the austerity policies demand by Greece’s creditors - EU, ECB and IMF - has strengthened the Prime Minister’s domestic standing as he campaigned vehemently for Greeks to reject lenders’ terms. Emboldened by this phenomenal referendum success, PM Alexis Tsipras said he would return to the negotiating table to strike an agreement with the creditors, although most governments in the eurozone have said they would not offer better conditions to Athens. More important, the referendum’s result has created even more uncertainty about the future of the country’s banking sector as the ECB has refused to extend more ELA support.
Following the referendum, the EC issued a brief statement saying it “respects” the result of the referendum. Other reactions were less diplomatic.
“With the rejection of the rules of the eurozone negotiations about a programme worth billions are barely conceivable” said German Economy Minister Sigmar Gabriel.
“Tsipras and his government are leading the Greek people on a path of bitter abandonment and hopelessness”, Gabriel said, adding Tsipras had “torn down the last bridges on which Greece and Europe could have moved toward a compromise”. European Parliament President Martin Schulz said Tuesday’s eurozone summit should discuss a “humanitarian aid programme for Greece” after Greeks rejected creditors’ proposals. He added that Greece must make “meaningful and constructive proposals” in the coming hours. “If not we are entering a very difficult and even dramatic time”, he said.
However, Mr. Tsipras may soon find it difficult to deliver on his promise to secure more lenient bailout terms let alone debt relief which has been a central point in his “No” campaign. European leaders, including Germany’s Angela Merkel and France’s Francois Holland, are in no mood to entertain plans for debt forgiveness as such a move would create a bad precedent for other Eurozone members with similar problems such as Italy, Spain and Portugal, who then make even more pressing demands. As was expected, the success of the “No” vote led to some fast unfolding political developments. The failure of the “Yes” campaign led New Democracy leader Antonis Samaras to announce his resignation. “I understand that our great party needs a new start”, he said. Samaras called on Greeks to set aside their differences and urged the government to reach a swift deal with creditors.
In a dramatic move, controversial Finance Minister Yanis Varoufakis was ousted by Prime Minister Tsipras who replaced him with Oxford educated economist Euclides Tsakalotos who until now has headed Greece’s bailout negotiation team. The move is expected to appease creditors who sought a more congenial and moderate negotiator.
The return of Tsipras to the negotiating table – which he left on his own volition abruptly on June 24, falsely claiming that his government was being blackmailed in order to call the “Yes” – “No” referendum - is not going to be welcomed by most other EU leaders and certainly not by EC president Jean-Claude Juncker who was openly cheated by Tsipras’ grand standing. Trust has been seriously eroded between Greece and creditors as European officials remain unconvinced that Tsipras will be able to make good on his promises, let alone deliver the spending cuts that will have to be agreed in any bailout settlement. The European Union has never witnessed anything like this happening in Greece before. As over the last ten days the government has introduced capital controls, closed the banks indefinitely, shut the Athens Exchange, defaulted on EUR 1.6 billion IMF payment, engineered the collapse of a multi-billion euro bailout, and organised an ill-conceived and misleading referendum aimed to broaden the gap between Greece and Europe.
Although Tsipras moved quickly to take advantage of his huge success with the “No” vote, reshuffling his cabinet by appointing the pragmatic Tsakalotos for Finance Minister and persuading the pro-European political parties to join him in forming a united stance in presenting his country’s fresh bailout proposals, he is still going to get a frosty reception in Brussels. Meanwhile, the country is fast moving towards financial collapse with the government and banks running out of money. Should the negotiations drag on for days, market insolvency will only get worse with bankruptcies mounting with supermarket shelves emptying and with the jubilant mood from last Sunday’s election quickly turning sour. Executives from all different business sectors are making daily appearances on television for a solution to be found by the weekend otherwise massive layoffs of workers will follow and complete market disintegration will result.
In a last-minute effort to safeguard the Eurozone’s fragile unity and prevent Greece from going bust, EU leaders met once again in Brussels on Tuesday night in a hastily convened summit. Athens was to be given one more chance to table its proposals for a new comprehensive plan to cover much needed reforms, urgent financing requirements to prevent a complete meltdown of the banking sector and some kind of debt relief. However, senior Eurozone officials who have seen the draft proposal appear apprehensive noting that the new plan is offering “too little, too late” as it fails to address adequately the burning issue of vital reforms in the direction of cost cutting and minimising Greece’s excessive public sector spending. The EU summit takes place against the backdrop of the ECB’s Monday decision to tighten further the screw on Greek banks when it required them to offer more assets in exchange for ELA, thus squeezing further their liquidity.
Under the circumstances, it therefore appears most unlikely that Alexis Tsipras, Greece’s boisterous Prime Minister, will walk out of the summit with a firm deal in his hands. He will probably be given few more days to negotiate a transition period for the introduction of a parallel currency in order to meet pressing financial commitments at home as there is no way for the ECB to extend further credit.
Meanwhile, the economy will continue its downward spiral as the government is contemplating the country’s fateful plunge into the unknown and its eventual departure from the European Union. For as we have already pointed out, the ultimate goal of the radical left SYRIZA party, which leads Greece’s coalition government, is to move Greece away from Europe and the Western flank and pursue a third-world country type independent path.
Consequently, Greece will soon become a poor and devastated country in the fringe of Europe and totally susceptible to geopolitical blackmail. The question is if the powers that be in Europe would really like such an outcome.