The referendum is a signal to renegotiate, not cause for alarm Regardless of how global markets behave over the next few days, the fact is that the ‘No’ vote in Greece marks a fresh beginning, and not the end of the world. It is not, as of now, even the end of the European Union, or even Greece’s continued presence in it, although a Greek exit from the euro has become a strong possibility. Sovereign defaults have occurred before. Argentina’s debt was restructured in two phases in 2005 and 2010, after it bluntly told the world in 2002 that it couldn’t pay up. The Mexican economy went belly-up twice, in 1982 and 1994. In Greece’s case, a ‘No’ to creditors’ (read Germany’s) terms for further bailouts on the terms currently offered — a further cut in pensions and an increase in value added tax — was always on the cards, considering the ‘austerity measures’ ordinary Greeks had already been put through. Greece had cut pensions and thousands of government jobs as a part of this austerity drive, which led to a wave of discontent which helped sweep Prime Minister Alexis Tsipras and his Syriza party to power. Greece has always maintained that the referendum is only a vote on the terms of assistance, and not on whether it wishes to leave the euro. The ‘No’ vote improves Greece’s negotiating position. The onus is on the troika of the European Central Bank, the European Union and the International Monetary Fund to come up with a plan that pares a part of Greece’s debt (to German and French banks in particular) and reschedules a portion of it over a longer period than the existing average tenure of about 16 years. Triggering a ‘Grexit’ only to deal with so-called moral hazard may stoke anti-austerity fires in Spain, Portugal and Italy, endangering the euro and hurting the economies of Germany and France, if not the world.
The resignation of Greece’s finance minister, Yanis Varoufakis, seems to suggest that Greece, too, would prefer to stick to the euro, albeit on more generous terms. A switchover to its own currency is fraught with uncertainties such as capital flight and the possible collapse of its banking system. However, there is a chance of Russia and China coming to Greece’s rescue through the recently established BRICS Development Bank and Asian Infrastructure Investment Bank. Its creditors must accept this geo-political possibility and act sensibly.
This calls for greater flexibility on part of all the players, something the pressures of domestic politics in Greece and Germany have so far prevented. Turmoil in the Euro Zone could lead to a flight from the euro and emerging market currencies for the safety of dollar assets. While this could hit the rupee, a fall of the sort seen in mid-2013 seems unlikely, as India’s current account deficit and inflation are at much lower levels. Greece’s default — it is a mere $250 billion economy — is not as huge a financial event as it is made out to be. Yet, its referendum is a political watershed. It sends out a clear message — that a club of international financiers and political leaders should not take the mandate of a democratically elected government, in this case against austerity, for granted.
DECCAN HERALD, JUL 06, 2015
Greek referendum is all too surreal
Everything about the Greek crisis has a surreal air about it. Greeks voted on Sunday on a referendum, which some expected to be scrapped at the eleventh hour. Prime Minister Alexis Tsipras, who accused his European interlocutors of bad faith negotiations while springing the surprise referen-dum on them, then did a U-turn and sent a missive to the troika (IMF, EC, and ECB) accepting most of the conditions he had objected to, in exchange for a new bailout. Hours later, he was broadcasting a denouncement of EU ‘blackmail’. In the referendum, the Greeks were expected to vote ‘Yes’ or ‘No’ to the troika’s proposals at the June 25 meeting, which had technically expired. Adding to the surreality, it’s not yet clear whether Greece has already defaulted while failing to make the June 30 debt repayment of €1.5 billion to the IMF, or whether as some experts now say, the real deadline is July 20 when €3.5 billion is due to the ECB.
What can be more surreal than the fact that Germany, the EU heavyweight, is itself a survivor of the devastating consequences brought on it by angry creditor nations demanding reparations after World War I? The unreasonable demands had crippled the Weimar Republic, creating the conditions for the Nazi takeover. As George Santayana said, those who do not learn from history are condemned to repeat it. Even more strange is the collective amnesia. Economist Thomas Piketty found it ironic that “austerity is imposed on debt-laden Greece by two countries, Germany and France, that benefited from debt cancellations after World War II”. He recalled that the cancellations allowed 30 years of European growth as the countries invested in education, innovation, and public infrastructure. “And now, those same countries tell Greece that it will have to pay four per cent of its GDP for 30 years. Who can believe this?”
As we go to press, the referendum results have not yet been announced. Tsipras hopes that a ‘No’ will give him the mandate to reject austerity more forcefully at Brussels. But with just $1.1 billion reserves remaining in Greek banks – enough to last only till Tuesday – a ‘No’ might just force ECB to pull the plug on emergency funding, and trigger a banking collapse and Grexit. A ‘Yes’ could mean certain regime change in Greece. But then, a Grexit would still ensue if the EU-friendly government fails to negotiate a new bailout before July 20, and pay the €3.5 billion due to the ECB. So then, haven’t we all heard this surreal tune before?
Greeks say 'No' to bailout, show partial poll results
Rejecting austerity terms could eventually lead to the country's exit from the euro zone
Greeks voted overwhelmingly "No" on Sunday in a historic bailout referendum, partial results showed, defying warnings from across Europe that rejecting new austerity terms for fresh financial aid would set their country on a path out of the euro.
With nearly a fifth of the votes counted, official figures showed 60.4 per cent of Greeks on course to reject a bailout offer from creditors that was the official issue of the ballot, said reports when this paper went to print. The figures showed the "Yes" vote drew 40.1 per cent. An official projection of the final result is expected at 1800 GMT.
Officials from the Greek government, which had argued that a No vote would strengthen its hand to secure a better deal from international creditors after months of wrangling, immediately said they would try to restart talks with European partners.
"The negotiations which will start must be concluded very soon, even within 48 hours," government spokesperson Gabriel Sakellaridis told Greek television." We will undertake every effort to seal it soon."
Euclid Tsakalotos, the government's chief negotiator said talks could restart as early as Sunday evening.
Many of Athens' partners have warned over the past week that a No vote would mean cutting bridges with Europe and driving Greece's crippled financial system into outright bankruptcy, dramatically worsening the country's five-year-long depression.
If confirmed, the result would also deliver a hammer blow to the European Union's grand single currency project. Intended to be permanent and unbreakable when it was created 15 years ago, the euro zone could now be on the point of losing its first member with the risk of further unravelling to come.
"I believe such a result can be used as a strong negotiating tool so that Europeans can understand that we are not a colony," said Nefeli Dimou, a 23-year-old student in Athens.
Greek banks, which have been closed all week and rationing withdrawals from cash machines, are expected to run out of money within days unless the European Central Bank provides an emergency lifeline.
Finance Minister Yanis Varoufakis is due to meet top Greek bankers later on Sunday and State Minister Nikos Pappas, one of Prime Minister Alexis Tsipras's closest aides, said it was "absolutely necessary" to restore liquidity to the banking system now that the vote is over.
However the European Central Bank, which holds a conference call on Monday morning, may be reluctant to increase emergency lending to Greek banks after voters rejected the spending cuts and economic reforms which creditors consider essential to make Greek public finances viable, central bankers said.
In Brussels, EU officials said there would be no comment until the final results are announced.
First indications were that any joint European political response may take a couple of days. German Chancellor Angela Merkel and French President Francois Hollande will meet in Paris on Monday afternoon. The European Commission, the EU executive, meets in Strasbourg on Tuesday and will report to the European Parliament on the situation.
"EU leaders must get together immediately, even on Monday. The situation is too serious to leave to finance ministers," said Axel Schaefer, a deputy head of the Social Democrat (SPD) group in the German parliament. "You have to have confidence in the ability of the ECB to act. We must use all the possibilities in the EU budget to help Greece, which is still a member of the euro and the EU."
A No vote would leave Greece and the euro zone in uncharted waters. Unable to borrow money on capital markets, Greece has one of the world's highest levels of public debt. The International Monetary Fund warned last week that it would need massive debt relief and 50 billion euros in fresh funds.
Greek officials see the IMF report as a vital support for their argument that the bailout terms as they stood would merely have driven Greece further into depression.
Tsipras called the referendum eight days ago after rejecting the tough terms offered by international creditors as the price for releasing billions of euros in bailout funds.
He denounced the bailout terms as "blackmail" and his argument that a No vote would allow the government to get a better deal appears to have convinced many Greeks, particularly among younger voters who have been ravaged by unemployment levels of nearly 50 per cent.
"I have been jobless for nearly four years and was telling myself to be patient," said 43-year-old Eleni Deligainni, who said she voted No. "But we've had enough deprivation and unemployment."
Opinion polls over the months have shown a large majority of Greeks want to remain in the euro. But, exhausted and angry after five years of cuts, falling living standards and rising taxes imposed under successive bailout programmes, many appear to have shrugged off the warnings of disaster, trusting that a deal can still be reached.