Greece: There’s No Such Thing As Miracles

shutterstock_237170767-webIn an act of political brinkmanship during the early hours of Saturday 27 June, Greece’s Prime Minister Alexis Tsipras unexpectedly announced that on Sunday 05 July Greece will hold a referendum on two proposals put forward by its creditors. On the one hand, this should come as no surprise: after all, even German Finance Minister Wolfgang Schäuble stated on 11 May that “maybe it would be the right thing to do to let Greeks decide whether they are ready to accept what needs to be done”. On the other, however, Tsipras’s actions may portray a man that has overestimated his bargaining position in a ruthless world of realpolitik. In response to the “#Greferendum” gambit, European equities closed sharply lower on Monday amidst fears of Greek default. Most top credit rating agencies, however, have said they would not downgrade Greece’s rating to full default, a stance that could keep vital ECB funding flowing. The International Monetary Fund (IMF) has also reiterated that its deal with Greece extends until March 2016.

The Greferendum gamble


By calling a referendum Tsipras has exposed himself to accusations of political cowardice and irresponsibility, by shifting the burden onto Greek citizens. While Tsipras may say that as his party was elected on a mandate of ending austerity, it is right to give Greek citizens the choice to accept the deal presented by Greece’s creditors, his decision to campaign for a “no” vote in Sunday’s referendum signals a clear breach of trust between Greece and the European Union (EU). The Prime Minister has lost nearly all his credibility not just with the Troika, but also at home, where he has gone from being yet another proclaimed Greek ‘political saviour’ to a man whose actions have provoked disillusionment amongst the moderate voters who supported him in spite of clear ideological differences and the risks associated with voting for the inexperienced and disjointed Syriza party.

What has generated even more commotion is the Greferendum question itself. Discussions in the Greek parliament on Saturday on the referendum were rendered irrelevant by the Eurogroup’s decision on the same day to withdraw the proposals on which Greeks are being invited to vote; yet the question put to the Greek people remains unchanged. European Commission President Jean-Claude Juncker has said that, regardless of the semantics of the referendum question, the vote is essentially: do Greeks say yes or no to Europe. EU leaders have been hammering this home to ensure that Greeks understand the consequences of Sunday’s vote. Preliminary polls indicate that Greeks in favour of a compromise with creditors outnumber those against. In a poll by Sunday newspaper To Proto Thema 57% of Greeks said they were in favour of an agreement with international creditors, with 29% supporting a collision course with Europe. Asked specifically how they would vote on a deal with creditors 47% said they would vote yes, 33% said no and 20% were undecided. It is certainly going to be a very tight vote: while most Greeks are sick of austerity, there is little popular will to exit the euro.

A country above politics and above egos

A no vote on Sunday would undoubtedly bring Greece to the end of the line. In the birthplace of democracy, the decision on Greece’s future in the EU has fatefully been handed over to its citizens. Should the Greeks vote yes the ball will be thrown back to the politicians who have continuously let them down for decades – and it is hard to see how Alexis Tsipras can continue as PM in such an eventuality. In the case of his resignation two possible scenarios emerge:

  1. Early elections: a possible scenario but the least favourable one for creditors.
  2. A unity government: This is the most favourable scenario for creditors but finding the right man to lead this unity government and earn approval from both Europeans and domestic actors will be the key challenge to overcome.

Early elections are already being debated in Greece. Both of the traditionally dominant parties, the right-of-centre New Democracy (ND) and the socialists PASOK, are keen on reinforcing their numbers in parliament and undoing the damage they sustained in January’s elections. However in the eyes of the public PASOK still holds much of the blame for Greece’s current state and ND continues to be mired by internal feuds and sabre rattling over the party’s leadership. Early elections will likely lead to more unwanted, counterproductive and divisive rhetoric that could lead to social unrest and the increased polarisation of Greek society. Elections could plunge the country back into a pre-1974 setting of extreme left versus extreme right: today the debate has been between those that are pro-bailout and anti-bailout. With fresh elections that could turn into entrenched camps that are pro- and anti-EU.

The only way to avoid this is to form a unity government that will be able to return more quickly to the negotiating table. A yes vote is likely to cause Syriza’s 40 or so extreme left wing MPs to break away, which could then allow remaining Syriza MPs to form part of such a national unity government, along with other pro-European parties ND, PASOK and To Potami. Together they would hold around 215 of the 300 seats in parliament, giving them a stronger majority than the current government. That leaves one hurdle: finding the right man to lead such a unity government – someone who can unite all parties and inspire the support of Brussels. Someone that fulfils only one of those two criteria will be accepted by neither Greece’s creditors nor its public.

The pragmatic question is how quickly Greece can return to the negotiating table. Action needs to be taken swiftly, and both potential scenarios outlined above could take time to materialise. For example, to allow the Greek banks to open next week Emergency Liquidity Assistance (ELA) by the European Central Bank (ECB) will need to be raised, and the ECB can only do that once a credible programme is put in place. The speed at which that can happen may be overestimated by those that think a yes vote to a withdrawn proposal can bring such relief.

The final word is with Greece’s lawmakers. Greece doesn’t need a miracle; it needs politicians to finally put responsibility above individual egos and the country above party politics. The modern history of the Hellenic Republic has proven this to be difficult, but the history of Greece’s standoff with creditors shows that anything is possible.

Constantine Levoyannis is a Senior Consultant at FTI Consulting Brussels and Hans Hack is Head of Financial Services at FTI Consulting Brussels

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