30 June 2015

‘Nein’ to third programme for Greece?

With Greece’s bailout expiring today, and hours before the country misses a €1.6bn payment to the IMF, Greek Prime Minister Alexis Tsipras has this afternoon submitted an 11th hour request to the Eurozone for a third bailout package to cover Greece’s financial needs for the next two years with funds from the Eurozone’s bailout fund – the European Stability Mechanism (ESM). Crucially, the proposals from Athens included a request for debt restructuring.

Almost as soon as reports of the request leaked, German Chancellor Angela Merkel shot it down. Germany would not discuss a third package for Greece ahead of the Greek referendum on Sunday, she told her CDU/CSU parliamentary faction according to reports.

Eurozone finance ministers are due to hold a conference call this evening to discuss the latest Greek requests, but the first signals are not particularly encouraging.

Greferendum decisive for Greece’s Eurozone membership

So with the red lines between Greece and its creditors drawn firmly (fundamentally, the former wants debt restructuring and the latter will not give it) attention falls to Sunday’s referendum, when the Greek people will have to make the choice.

Although Tsipras & co have been trying to convey the message that the vote will simply be on whether to continue the ‘Troika-mandated’ austerity in Greece – and campaign for a ‘No’ vote on that basis – the stakes have been raised by Europe’s political bigwigs. Their message is clear and unmistakable: Sunday’s vote is about whether or not Greeks want to stay in the Eurozone.

Despite the flawed logic of Syriza’s election promises (i.e. that Greece can stay in the Eurozone while chucking out austerity) and their non-conventional negotiation tactics, the appeals to the Greek people by the EU’s big shots are clearly a campaign for a result in Greece which the Eurozone feels is politically and legally viable – and which it can stomach.

Following a day of emergency meetings in the Bundestag yesterday, German Chancellor Angela Merkel said that the creditors had made an “exceedingly generous offer” to Athens, highlighting what we already knew – the creditors will not move (and especially not on what Syriza wants most – debt restructuring). If Greece cannot agree to these terms, then it will have to leave the euro.

German Vice Chancellor and Economy Minister Sigmar Gabriel drove the point home at a joint press conference with Merkel:

“It must be crystal clear what is being decided. It is, at the core, ‘Yes’ or ‘No’ to remaining in the Eurozone.

French President Francois Hollande also pulled no punches:

The issue at stake [in the Greek referendum] will be fundamental: it is about knowing whether the Greeks want to stay in the Eurozone. That’s their place…but it is up to them to make such a decision, or take the risk of leaving.

Sigmar Gabriel, German Vice Chancellor, 29 June 2015

Even Matteo Renzi, the Italian Prime Minister, who has often been painted as among the most sympathetic to Tsipras, torpedoed any hope Athens might have had for an ally in Rome. In an interview published in Italy’s business daily Il Sole 24 Ore, Renzi said:

This is not a referendum among European leaders. This is a run-off: euro or drachma. The Greeks don’t have to say whether they love more their Prime Minister or the President of the European Commission, but whether they want to remain in the single currency or not.

Matteo Renzi, Il Sole 24 Ore, 30 June 2015

Ahead of the Greferendum then, it is quite clearly Tsipras vs the Eurozone 18. When EU politics comes down to the wire, and the choice is framed as one between between X and Berlin – there are no prizes for guessing who will come out on top.

Perhaps the most extraordinary interventions, however, came from European Commission President Jean-Claude Juncker. Given that the Eurozone now holds 60% of Greek debt, one can understand – if not condone – that other Eurozone leaders are somewhat getting involved in domestic Greek politics. The European Commission, however, is not one of Greece’s creditors. In a hour long speech on Monday, Juncker made a personal appeal to the Greek people:

Over the last five months I have been personally involved in the entire process of negotiations – sometimes day, sometimes night. For me Greece’s exit of the eurozone has never been and will never be an option. But I always told my Greek friends that by saying that Grexit is not an option, they shouldn’t believe that at the very end of the process I will be able to present against others a final answer and a final solution to be given to what I have to describe as a primarily Greek problem.
Jean-Claude Juncker, 29 June 2015
Juncker concluded:

I would like to say to the Greeks I love very deeply: Don’t commit suicide because you are afraid of death.

Jean-Claude Juncker, 29 June 2015

So Juncker is effectively now leading the ‘Yes’ campaign. Implicitly, that means he backs the government change that would very likely follow a ‘Yes’ victory in the Greek referendum. Extraordinary.

What next for Greece?

No matter what happens in the Greferendum, what’s obvious is there will be no easy option for Greece. A ‘Yes’ vote, leading to the re-opening of talks and some kind of deal between Greece and its creditors, would at best provide a short-term solution. The fundamental issue plaguing Greece – its mountain of debt – is one that cannot be resolved without the Eurozone answering some fundamental existential questions about its future development. (See this from my colleague Raoul, on why Greek debt restructuring is  politically an almost impossible prospect for the Eurozone)

A ‘No’ vote could precipitate a Grexit – pushing the Eurozone into uncharted waters. Either option is likely to be accompanied by further messy politics, the potential for protracted legal challenges, and, potentially, a continued downward spiral for the Greek economy.