Greek referendum

Whither next, Greece?

With a clearer margin than it had been anticipated, the people of Greece have voted no to a deal that is no longer on the table, and it seems ‘Grexit’ has become likelier. It was billed to the Greek people by Mr Tsipras and Mr Varoufakis not as a referendum on the Greek membership of the eurozone. They argued for a strong no which would strengthen their negotiating position. It may be a political master stroke betting that other eurozone countries would want to avoid ‘Grexit’ at any cost and will finally come to terms more favourable to their position, or – more likely – extremely disingenuous since they fully know the likeliest outcome of a no vote is ‘Grexit’.

To a large extent, this result does not achieve much, except making a deal a lot more difficult, perhaps even impossible: the Greek government may feel that its position has the support of the Greek people, and it has a mandate to seek a better deal. At the same time, the result of the referendum binds the government: Mr Tsipras and Mr Varoufakis can no longer agree to a deal that would include austerity measures (certainly not without a substantial debt relief), thus reducing their room for manoeuvre. For anything other than a really good deal, they will struggle to pass the necessary legislation through the parliament, moreover they will be seen as going against the explicit wishes of the Greek people who had rejected austerity. The people of Greece are free to elect a government of their choice, and are free to vote in an ill-defined and rushed referendum for or against a deal that no longer exists, but there is no obligation on the part of the other eurozone countries to agree to the Greek position as a result. The other 18 governments in the eurozone are also democratically elected, and they will have to explain and be accountable to their electorate about their actions. And it seems doubtful that the other 18 eurozone countries will agree to the Greek position: they will not be able to sell the idea to their people that their taxes have to fund Greece without reforms in return, or that the taxpayers’ money is lost because they are going to write off some of Greece’s debts.

Time and trust underpinned by a determined will to find the common ground and a dose of flexibility are often required for a successful negotiation, and unfortunately they are in short supply. Time is running out: Greek banks may run out of money very soon, the Greek state already in default to the International Monetary Fund will have to service and repay its debts soon. Even with the best will in the world, given the situation, some form of ‘Grexit’ may now be unavoidable. There is no mechanism as such for a country to leave the eurozone, but a banking collapse or state’s inability to pay wages and pensions will lead inevitabley to the introduction of a parallel currency. If ‘Grexit’ were to happen, the consequences for the people of Greece are horrible to countenance, yet it may be argued by other Europeans that the Greeks had voted for such in the referendum. In this line of argument, the Greek government and political class have abdicated their responsibility, and have created an alibi for their failures. The collective failures of the Greek political class are going to condemn one generation, may be two generations, of Greeks.

It does feel like the beginning of the end for Greece’s membership of the single currency. But if this chapter in this Greek drama does end in ‘Grexit’, whither next, Greece?