Time to put some oxygen into the oxi

shutterstock_230789242-webWith Sunday’s vote, Tsipras has generated some significant political capital which he must now spend wisely in the next stage of negotiations. But for all parties around the negotiating table, it’s time to put some oxygen into Greeks’ oxi, say FTI Consulting’s Constantine Levoyannis, George Candon and Hans Hack.

The major wager
Probably the only thing that is certain in the whole Greek financial crisis at the moment is the palpable sense of relief in Athens and shock in European capitals following Sunday’s plebiscite. Confounding the expectations of many, Tsipras has achieved what many – perhaps even the man himself – thought unachievable. Facing down enormous pressure from the EU Institutions and an immense effort by private media in Greece to push for a yes vote, Tsipras secured an overwhelming oxi, or no, vote – over 60% nationally, and in every constituency across the country.

Without a doubt, the referendum was a huge gamble for Tsipras. He put his head firmly on the line. His decision created uproar and disdain, both at home and across 18 European capitals. However a day after the results and following a period of intense campaigning that polarised Greek society – recalling memories of a pre-1974 Greece in the midst of civil war – it looks like Tsipras’s wager may pay off. To cite Gene Hackman’s character in the film Enemy of the State, he was either incredibly smart or incredibly stupid.

Unexpected outcomes
Nobody knew what to expect from Tsipras following his victory. What’s certain is that before his comments late on Sunday night following the result of the referendum, there was very little hope or belief that Greece and its creditors could return to the negotiating table. Tsipras’s address to the nation was not the full-throated, passionate victory speech we could have expected. Rather, he chose to diffuse the explosive situation he knew he had created.

Addressing the nation, he called for unity and invited leaders of all political groups in Greece to a meeting to be chaired by the Greek president. Perhaps most significantly and astutely, on the morning of 06 July he asked Yanis Varoufakis, his outspoken Finance Minister who has rattled more than just a few cages of European colleagues, to resign.

Ironically, the referendum has thus produced two results which European leaders had long hoped for:

1. To the joy of many (politicians) and dismay of some (journalists), Yanis Varoufakis won’t be going to another Eurogroup meeting. His presence was deemed toxic and his removal was surely a prerequisite for discussions between Greece and creditors to resume. His replacement Euclides Tsakalotos will prove more modest and less confrontational – despite his background as a university lecturer.

2. The result of Sunday’s referendum led to the resignation of New Democracy’s leader, Antonis Samaras. In truth, this is what allowed Alexis Tsipras to call the meeting of political leaders. Since January’s general election the European Parliament has called on Tsipras to form a government of national unity of pro-EU parties, and now they have something very closely resembling that. Monday’s agreement on a common negotiating position is an historic achievement: no other government managed this during the past five years of misery and austerity. Broad political agreement on Greece’s negotiating position gives the Greek government a reinforced mandate and credibility that it was severely lacking in negotiations with creditors.

Following the vote, both sides have carefully positioned themselves and have significantly ratcheted down the rhetoric. Still, a very large gap between Greece and the other 18 Eurozone members remains to be bridged. Contrary to predictions, EuroGroup and EuroSummit meetings will take place today, where it will be up to Eurozone finance ministers and heads of state to decide on the way forward.

If Greece wants to survive within the Eurozone a framework for a final agreement is needed very soon. In the absence of a political agreement in the very near future the ECB will no longer be able to maintain Emergency Liquidity Assistance (ELA), causing the Greek banking system to crash. Liquidity in Greece has simply dried up, notwithstanding the capital controls put in place. Whether a newly-installed Greek finance minister, backed by a broad political consensus, can start the long, hard, slog out of the valley of death partly depends on Hollande’s powers of persuasion over Merkel and other Eurozone leaders, as well as on the Greeks presenting a compelling proposal of tangible, realistic and mutually acceptable measures.

The French connection
Both Merkel and Hollande have reiterated that time is of the essence and emphasised the need for reforms before EU solidarity. Debt relief will remain a challenge, and at this stage is still something of a no-go. But armed with the internal IMF report advocating debt relief and a proposal for concrete structural reforms, Tsipras might be able to achieve a de facto relief that is labelled differently or at least deferred to later discussions. French Prime Minister Manuel Valls today said that the basis for a deal existed and that no subject, including restructuring, was taboo when it comes to Greece’s debt.

Ahead of today’s EuroSummit the latest episode in the Greek saga has forced Hollande and Merkel to return to the issue of what kind of Europe we want to build. Hollande ran his presidential campaign on a platform of pro-growth and anti-austerity, promising to be the defender of a more social Europe. Thus far he has failed to live up to expectations as the French counterbalance to Germany. Developments in Greece however seem to be resurrecting that opportunity, giving the French President a second chance.

A week ago the Greek government had 18 Eurozone countries lined against them, but now – yet again – Europe is split between north and south. Italy and France were the first countries to contact officials in the Greece to reopen communication channels. Both Matteo Renzi and François Hollande agree with Greece on the need for solidarity and fighting austerity. It’s clear that ahead of today’s EuroSummit Hollande has an historic opportunity to facilitate solutions that have thus far proven elusive, but his conviction until now leaves room for doubt. We know where Germany stands, but it is not at all clear how France will act. It’s also worth mentioning that the Greek Prime Minister did not only receive calls from his Italian and French counterparts: Vladimir also called.

A deal won’t be reached today. But today is a chance to restore trust and bridge differences. At best, Greece can hope for a bridging financing agreement that will unlock much needed ELA until a deal is found, probably later in the week. The great game continues and now is a time for cool heads to prevail. Now is also an opportunity for European leaders to show that they can be more than mere national politicians. They can become statesmen and women.

Constantine Levoyannis is a Senior Consultant at FTI Consulting Brussels, where George Candon is a Senior Director focusing on political communications and Hans Hack is Managing Director & head of financial services.

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