Friday, 10 July 2015

What was the point of the referendum?

Now that the Greek government has made its proposals public, and the document that has been floated is almost exactly that handed down by creditors on June 25, many are asking what the point of the referendum was, and whether it has made any difference to the process of reaching an agreement.

1.     The main reason for Prime Minister Alexis Tsipras calling the referendum was almost certainly to use it as leverage against German Chancellor Angela Merkel. Presumably if the prospect of a No vote frightened her enough, she would concede points in return for a cancellation of the referendum.

Merkel, however, decided to use the referendum against the Greeks, and held Tsipras to it. Her calculation was that if she won a Yes vote that would force the resignation of Tsipras’ government. A cross-party cabinet would be installed, with a German choice of prime minister, as happened in 2012, when former central banker Loukas Papademos was installed on top of a vast parliamentary majority of five sixths.

Merkel could enlist the European Central Bank, which cut off liquidity to the Greek banking system and forced capital controls, shocking Greek voters and putting the market under enormous strain. She could also enlist European Union officials, such as Eurogroup President Jeroen Dijsselbloem and European Commission President Jean-Claude Juncker, to threaten the Greeks with a Eurozone exit if they voted no.

But Merkel miscalculated. European threats to Greeks may well have backfired. Tsipras was able to enlist the desperation of 40 percent of Greek society, which now lives under the pre-crisis poverty level of 8,767 euros a year (by tax declaration). He could also enlist the young, one in two of whom are unemployed.

The result, however, is irrelevant to the negotiation process. The referendum was never intended to happen, or truly to give the Greeks a chance to reject austerity. And most voters seem to have known this. They fully understood that they would suffer austerity either way, so they decided to use the referendum as a symbolic “up yours” to Merkel.

Now we are back to business, on the basis of the same document. But Tsipras thinks he may now make it palatable by enriching it in three ways: a) by extending it to a three-year financing period, b) by accompanying it with a 35bn euro development package from the European Commission, c) by accompanying it with a rescheduling of Greek debt. The International Monetary Fund has said that Greece needs a 20-year grace period followed by a 40-year repayment schedule. It currently has a 7-year grace period followed by a 16-year repayment period. If Tsipras brings the rescheduling home, he will have fixed the biggest problem of the bailout. 

2.     A second reason Tsipras may have chosen the referendum was that he preferred it to a parliamentary debate followed by a vote that would have split his party between moderates and hardliners. The measures would probably have passed on the strength of the opposition vote, but the division of Syriza would probably have brought down the government.

3.     Some believe that Tsipras was using the referendum to commit political suicide. It’s true that one crisis-era prime minister resigned (George Papandreou) and another hastened his own demise by calling an early parliamentary election for the country’s new president (Antonis Samaras), but Tsipras has only been in power for five months. He carries a historic responsibility to the left, which he brought to power for the first time. To leave with the reputation of a failed premier who dashed all promise was probably an even worse cross to bear than to continue dealing with Mrs. Merkel.

Has the referendum had an effect on the outcome? It has prompted the closure of banks, which in turn has wrought havoc with commerce and brought criticism that the ECB is playing politics. (Greece did soon after the referendum win approval for the European Stability Mechanism to buy the ECB's Greek debt). The private sector will take months to revive, even if there is an agreement. Some entrepreneurs are talking about relocation. In addition, the bank closure is bringing the banking sector closer to bankruptcy and may hasten more mergers. 

For more discussion about both the primary mistakes made by the Greeks, and the secondary mistakes made by creditors, you can listen to On Point, a show on Boston's WBUR

No comments:

Post a Comment

Note: only a member of this blog may post a comment.