On July 6, Greeks went to the polls to vote on whether or not to accept the bailout conditions previously put forward by its international creditors and the EU. Overwhelmingly, Greeks have rejected the proposals, with 60 percent voting “no,” as the Syriza government had urged.
Although the referendum question itself was redundant, as any decision on the deal has since expired, the vote is being interpreted as a general rejection of EU austerity measures. The ‘no’ vote makes the prospect of Greece defaulting on the rest of its debt to EU creditors and the IMF more likely, potentially forcing the country out of the Eurozone and having to readopt its old Drachma currency.
The ‘no’ vote makes the prospect of Greece defaulting on the rest of its debt to EU creditors and the IMF more likely
The Greek government, however, seems optimistic that this will not be the case. According to the Prime Minister of Greece, the Financial Times reports, negotiations with European leaders will continue, but now “the issue of debt will be on the negotiating table”. “The mandate you’ve given me,” he told voters “does not call for a break with Europe, but rather gives me greater negotiating strength.” Others in the eurozone are not so hopeful, with the deputy German chancellor, Sigmar Gabriel, telling Tagesspiegel newspaper that “[w]ith the rejection of the rules of the eurozone … negotiations about a programme worth billions are barely conceivable.”
The first political casualty of the ‘no’ vote has been Yanis Varoufakis, who in the wake of the result has quit his position as Finance Minister. Writing on his personal blog, he claimed that he was made aware that members of the Eurogroup and others involved in the negotiations wished for his absence in any further negotiations, leading him to resign so as to ensure the best possible outcome for any post-‘no’ vote talks.
Greece’s banks are fast running out of cash and it is uncertain whether or not they will be able to open this week. According to IHS Global Insight’s senior economist Diego Iscaro, reports Business Insider, the ECB will continue providing liquidity to Greek banks for the time being, however “it is very likely banks will not reopen on 7 July as currently expected.” The FT is reporting that the Greek central bank is discussing reducing the withdrawal limit to just €20 a day.
On July 20, Greece is due to pay €3.5bn to the ECB. If it does not pay – and by rejecting bailout conditions it is hard to see how it can – then it is likely that the ECB will cease to accept collateral from Greek banks and withdraw its €89bn worth of Emergency Liquidity Funding, essentially leaving Greece’s banking sector insolvent. At this point the country would most likely be forced to restart printing its own currency. Whether or not – or how – this would mean Greece exits the eurozone, however, is unclear, as there is no legal process for forcing a country out of the monetary union.
