European Affairs

Resounding Oxi (“No”) Vote Means Uncharted Future for Greece and the EU     Print Email

Spellman 1After a week of shuttered banks and dueling rallies that drew tens of thousands of people, Greece’s voters resoundingly turned down a bailout package the ruling government vociferously opposed.  The landslide “no” vote on Sunday triggered many difficult questions for the country, leaders of EU countries, Brussels, and creditors — from the urgent, practical matters focused on reopening Greek banks Tuesday to the political consequences surrounding Greece’s future within the European Union.

With nearly all the votes counted, 61.3 percent checked “no,” an emphatic “mandate,” the ruling government leader Alexis Tsipras said, that was not “against Europe, but a mandate for a sustainable future.”  Tspiras had campaigned hard for the “oxi” vote, charging that the bailout package was an “ultimatum” that wasn’t “viable” because its tax increases and spending cuts were too severe. “The Greek people can’t be bled dry any longer,” he insisted.

Finance Minister Yanis Varoufakis had sharpened the rhetoric even more.  “What they’re doing with Greece has a name — terrorism.  What Brussels and the troika want today is for the yes (vote) to win so they could humiliate the Greeks.”[1]   After casting his ballot, he described the referendum as "a holy moment" that "gives hope that the common currency and democracy can co-exist."[2]
These and prior remarks, though, led to his surprise resignation Monday after Eurozone members apparently pressured Tsipras that Varoufakis’s continued involvement would unnecessarily burden the difficult negotiations.[3]       

Reactions to the historic vote from the leaders of EU member-countries and the EU varied widely.  They expressed concern and uncertainty over whether a deal could be secured within 48 hours, as Tsipras asserted he could, his position fortified by the referendum.  

Further complicating the challenge ahead are more repayment deadlines, including the €3.5 billion ($3.9 billion) owed to the European Central Bank on July 20.  Athens already missed a €1.5-billion ($1.7 billion) repayment to the International Monetary Fund on June 30.  By the end of 2017, Greece has to make payments of €26 billion, according to the Greek government’s calculations.  Meanwhile, the ratio of Greece’s debt to gross domestic product continues to climb, having reached 177 percent before the capital controls were implemented last week, the IMF reported.

Source:   BBC, July 5, 2015. .

Germany's Deputy Chancellor, Sigmar Gabriel, said renewed negotiations with Greece were "difficult to imagine," adding that Tsipras had "torn down the bridges" between Greece and Europe.  Others were more conciliatory.  Belgium's finance minister said the door remained open to restart talks "literally, within hours."  The president of the European parliament, Martin Schulz, pledged in his interview with Die Welt am Sonntag that, “We won’t abandon the Greek people to their fate.”[4]

German Chancellor Angela Merkel and French President François Hollande meet on Monday afternoon to discuss a response.  Merkel’s spokesman on Monday morning said Germany sees there is no basis “at to enter negotiations on a new program.” “A lot will depend on what proposals the Greek government now puts on the table,” he said.  Unsaid but evident are concerns over the referendum’s impact on elections in Portugal in October and Spain in November or December.  Will leftist parties trounce the conservative governments in both countries?

On Tuesday, the Eurozone leaders will hold a summit to decide whether to launch a new round of bailout talks or prepare for Greece’s departure from the Eurozone.  “Ministers expect new proposals from the Greek authorities,” said a statement released on Monday.  


Deciding on a starting point for the post-referendum negotiations is itself an extremely complicated issue for Brussels and Athens.  The bailout initiative the Greeks rejected technically expired on June 30.  Equally confusing is the position of Tsipras heading into any new talks.  A letter to the heads of the country’s trio of bailout monitors on July 2, which was leaked to the Financial Times, conceded to most of the EU’s demands.[5]

According to a BBC analysis (provided below verbatim), the main hurdles to an agreement before talks broke off the weekend before the referendum include:

  •  - VAT (sales tax):  Tsipras accepts a new three-tier system, but wants to keep 30% discount on the Greek islands' VAT rates. Lenders want the islands' discounts scrapped
  •  - Pensions: Ekas top-up grant for some 200,000 poorer pensioners will be phased out by 2020 - as demanded by lenders. But Tsipras says no to immediate Ekas cut for the wealthiest 20% of Ekas recipients
  •  - Defence: Tsipras says reduce ceiling for military spending by €200m in 2016 and €400m in 2017. Lenders call for €400m reduction - no mention of €200m

The scope of the negotiations is broadening, too, to include debt restructuring, after the IMF put this on the table by releasing a report last week.  In characterizing Greece’s debt load as “unsustainable,” the report asserted that the European Union may need to lose as much as €53 billion euros of the money it has lent to Greece.  The IMF called for a 20-year grace period for repaying loans and injecting as much as €60 billion into Greece’s economy to stabilize the economy and create “a breathing space.”[6]

An immediate, pressing crisis is the re-opening of Greece’s banks.  Louka Katseli, chairwoman of Greece’s largest bank, the National Bank of Greece, on Friday said that Greek banks may not have any money left by Tuesday.  She estimated the remaining liquidity buffer at about €1 billion ($1.1 billion).[7]

The ECB has provided €85 billion in Emergency Liquidity Assistance to the Greek central bank but refused to lift that cap.  Without more funds, the banks are expected to run out of cash over the next few days — even with the severe withdrawal restrictions in place.  ELA limits how that money can be spent; it cannot be used to fund national governments under EU law. Greek banks cannot buy any more Treasuries above what they held (€15 billion) the day (February 18) Athens requested a bailout extension.  Athens needs Greek banks – the only buyers available -- to buy T-bills to raise funds to pay for pensions and other bills.  The ECB’s hands are tied, too, by the expiration of the bailout program on June 30.

“Should the ECB refuse to give Greek banks the money they need,” Stratfor Global Intelligence wrote in its July 5 newsletter to investors, “Greece will have two options. The first option involves seizing a part of the deposits to shore up the banks, known as a bail-in, which has a direct precedent in the Cypriot crisis of 2013. The second option is even more drastic:  returning to the drachma to recapitalize banks by printing money.”

When Europe’s financial markets opened Monday morning, investors seemed sanguine about the historic vote’s fallout, with the selloff in stocks and the euro less than many analysts had expected.  The pan-European Stoxx Europe 600 index fell 1.2%. Germany’s DAX declined 1.3%, and France’s CAC-40 was down 1.6% in the first few hours of trading.[8]

One analyst attributed this tempered drop to the resignation of Varoufakis.  “Without Varoufakis, negotiations will become somewhat easier,” he said.  Investors, too, seemed more concerned over the sharp drop in China’s stock market, which has fallen as much as 30 percent since June, as the economy down-throttles to its slowest pace in a generation.  Other analysts see Grexit as a near-certainty now.  A J.P. Morgan report said Grexit is their “baseline scenario, with a probability at two-thirds at present.”

One roadmap was put forward on Saturday in Le Monde by Jacques Delors, former president of the EU commission.  His three-part rescue plan calls for immediate financial aid to ensure short-term solvency of the government, long-term programs to stimulate and sustain economic growth, and “without delay examination of the weight of Greek debt.”[9]


[1]BBC, “Greece referendum: Greeks in decisive vote over debt deal.” July 5, 2015.   Also: The Guardian, “Greek referendum: No campaign storms to victory with 61.31% of the vote - as it happened.” July 5, 2015. .


[3]Varoufakis said: “Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today.”

[4]Eric Reguly, “After Greece votes No, Euro leaders scramble to discuss response.” The Globe and Mail, July 5, 2015. .

[5]Peter Spiegel, “Leaked: Tsipras letter concedes on many major points.” Financial Times Blog, July 1, 2015.

 [6]IMF, “Greece: Preliminary Draft Debt Sustainability Analysis.” July 2, 2014.   Country Report No. 15/165 . The report said: “[S]ignificant changes in policies since [May 2014]—not least, lower primary surpluses and a weak reform effort that will weigh on growth and privatization—are leading to substantial new financing needs. Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable.”

“If the program had been implemented as assumed, no further debt relief would have been needed under the agreed November 2012 framework.” “However, very significant changes in policies and in the outlook since early this year have resulted in a substantial increase in financing needs.”

Before January, when the new government was elected, the I.M.F. said, Greece’s economy had reached a point where Athens would have been able to make debt payments in years to come. But in recent months, the government has weakened efforts to improve the economy, and has slowed the sell-off of government assets that would have raised cash, the I.M.F. said. And that has created a new financing gap, the fund’s report said.

“Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable,” the I.M.F. said in the report. “If the program had been implemented as assumed, no further debt relief would have been needed.”

Plans to sell government assets, already behind schedule when Syriza took office, are even more in jeopardy, the I.M.F. said. Revenue from sales of state assets amounted to just €3.2 billion as of the end of March, the I.M.F. said, far short of a target of €50 billion by the end of the year.      

[7]Constantine Courcoulas and Christos Ziotis, “D-Day for Greek Banks Looms Following Austerity Referendum.” Bloomberg, July 4, 2015. .

[8]Josie Cox, “European Shares Fall After Greek Vote.” Wall Street Journal, July 6, 2015. .

[9]Jacques Delors, Pascal Lamy, and Antonio Vitorino. “Jacques Delors appelle à poursuivre l’odyssée avec Athènes.” Le Monde, July 4, 2015.

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