The result of yesterday’s referendum could not be any clearer. An overwhelming majority of Greeks rejected the proposal of further austerity without dealing with the long-term sustainability of the Greek debt. But has this made a deal more likely? I don’t think so but as time is running out quickly it has at least forced a decision in the next few days. Here is what I think is going on following from my earlier post on the pre-referendum situation.
1) We are already seeing that different national democracies of Eurozone countries are being played out against each other. The European Commission’s first reaction was this:
The European Commission takes note of and respects the result of the referendum in Greece. President Juncker is consulting (…) with the democratically elected leaders of the other 18 Eurozone members as well as with the Heads of the EU institutions.
The reference to the 18 democratically elected leaders in the other Eurozone member states is code for saying: “even after this referendum you shouldn’t think that your voice counts more than the others”.
2) The first decision needs to be taken by the ECB today. The capped Emergency Liquidity Assistance (ELA) is running out very soon and could force the introduction of an alternative payment system following the drying up of Euros in the banks. If rumours broadcast on German TV yesterday evening are correct the ECB is likely to do nothing today to avoid being seen as ‘political’. Doing nothing is also very much ‘political’ but this is another discussion.
3) If the ELA cap is not increased the pressure on the Greek economy will intensify leading to a collapse probably before the end of the week if nothing happens. Expect that responsibility for the unfolding situation is being shifted around as nobody wants to be blamed. ECB does not change ELA putting pressure on the Council meeting tomorrow to reach a conclusion which puts pressure on Greek government to come up with “sensible” proposals…
4) The resignation of Varoufakis on the Greek side is a signal for a fresh start under these extraordinary circumstances. It would be very welcome if this gesture of goodwill was reciprocated on the creditor’s side. Maybe not through a resignation – I think few realise that they are indeed obstacles and feel empowered by their whipped up national electorates to be tough – but maybe some other way. Offering debt restructuring would be the obvious one.
5) Now the decision between a rock and a hard place is with Angela Merkel. Her approach of kicking the can down the road is spectacularly falling on her feet. If Greece is to stay in the Eurozone it needs new money and the bill will be even bigger given the current situation she has helped to create. As a result of the refusal to accept the policies of the last five years as failure she would now have a very tough time convincing her own MPs to vote for new help. It is said in Berlin that at least 1/3 of her own parliamentary group would not vote for new help measures so she would have to rely on her coalition partner (and possibly the opposition just to rub it in) to get a parliamentary majority in Berlin. This would be a bruising defeat even she could not easily dismiss. It might kick-start her decline after almost ten years in office.
The alternative is that no agreement is reached and, probably through the ECB, the plug on Greece’s Euro membership is pulled. This would leave Greece in a desperate situation and the whole European Union in limbo because there is no legal procedure for this case and a wider erosion process would probably kick in. She would enter history books as the German Chancellor who broke up the Euro and accelerated the reversal of European integration.
This is – I think – where we are at the moment. And it means that a resolution has to be found in the next few days or events will take that decision for Europe’s leaders. I still hope for reason to return and a deal that will help overcome the situation and keep Greece in the Euro with a credible promise for a better future. The pressure is on and time is very short indeed!
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