The Greek people have a momentous decision to make this Sunday. But I am afraid this referendum will not solve the problem no matter what the result. There will, however, be two certain casualties: Greece and European integration. Let me explain.
The backdrop to the story is that I think the Greek government has made a tactical mistake with the timing of the referendum. If they wanted a referendum they should have held it before the second bailout package expired. Now there is technically no deal on the table allowing people to question what this is all about. A ‘yes’ vote would not directly lead to a certain outcome and the opportunity to delay any progress is the key trump in this game given the financial state of affairs. The situation looks chaotic.
Even more importantly, the pressure on Greece is being increased by the ECB. The capped ELA is likely to run out over the weekend and there is no follow-up decision in place yet. IMF non-payment is one thing but if there is no more liquidity in the banking system this forces an alternative payment system to prevent a complete economic collapse.
Against the backdrop of these two points, this is how things could play out.
Scenario 1: A ‘Yes’ Vote
If there is a ‘yes’ vote on Sunday it will be the result of anxiety and scare tactics threatening a future without the Euro. The Greek government will most likely fall and there is a question about what would happen then. Another technocratic government, as the European Parliament’s President Martin Schulz wants? New elections which will take time the country does not really have?
In any case it looks like a ‘yes’ vote driven by scare tactics would accomplish the regime change quite a few of the key players have arguably been working towards since January. In this situation two things would happen: the failed austerity project would be extended and Greece will sink even deeper into economic and political desperation. We have published a lot on the failure of austerity so I will skip that point. But the new level of political desperation would be clear: the Greeks voted for change in January. This change could not be delivered and with a gun to their heads they had to abandon hope and vote for more of the same in a referendum five months later. The illusion of national sovereignty and democratic self-determination would disappear.
Scenario 2: A ‘No’ Vote
With a ‘no’ vote the Greek people would reaffirm its opposition to the political course of recent years and strengthen its government. The problem is that I don’t think that this would matter. The government has played its strong anti-austerity mandate given by the Greek people since it came to power in January. The creditors have been completely unmoved and I unfortunately cannot see why a reaffirmation of the desire for alternative policies would change that. It should be abundantly clear by now that this kind of democratic expression is largely ignored as it does not affect any of the creditors’ decision-makers and contradicts the economic and political fantasy world they have created.
What does, however, affect the creditors’ political decision-makers are their own national electorates which have been mislead for years. If there is a decision to pull the plug on Greece’s Euro membership – given the lack of a legal procedure and the unwillingness to accept the political responsibility for this – I have the strong hunch that this will be played via the ECB. The ECB does not face elections anywhere and it has kept the ELA leash so short that the cord could be cut at any moment. If there are no more Euros in the banks the Greek government would be forced to introduce an alternative payment system, possibly while legally remaining in the Euro. Again the loser would be the Greek people as the country would be plunged into economic despair and the rift within Europe would become even bigger, maybe even too big to repair.
In both scenarios the Greek people will lose out. And European integration is a second big loser too, principally because of a lack of Eurozone-level democracy. In the absence of this there seems to be a choice between technocratic authoritarianism from the center or national democracy in isolation. At the same time the already dysfunctional negotiation system has broken down completely so there is no more coordination of events. We are currently flying in blind mode and even small decisions could have huge consequences. In short: we could be in for a European politics version of the butterfly effect.
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