This week has certainly not lacked fireworks in Greece, with a number of key developments unfolding over the past few days, each of which upping the political and economic ante entwined with Sunday’s critical July 5 referendum vote that may well prove to be a watershed moment in Greek relations with the European Union.
Exasperated Greeks, pushed to the brink after months of failed negotiations between Eurogroup creditors and the Greek government, have had to grapple a number of painful damage control mechanisms on the home front, which have included the imposition of capital controls (€60 daily withdrawal cap from ATMs) and pension rations for retirees (€120).
Furthermore, the week also saw the passage of the June 30 deadline, which simultaneously led to an expiration of the current European bailout fund and missed €1.6 billion payment to the International Monetary Fund (IMF) – the largest sum for any developed country.
Anything But Business As Usual
As the days count down to the July 5 referendum in Greece, many of the country’s population have grown increasingly restless. As recently as last week, opposition to the European Union’s austerity measures and bailout package reforms were overwhelmingly opposed – a figure that has since waned in past days on the back end of lean pensions, bank closures, and ATMs devoid of euro notes. By most estimates, including a number of recently polled samples in Greece, the referendum will be a rather tight affair that at this juncture is too close to call.
Meanwhile, the bravado of Greece’s Prime Minister Alexis Tsipras has maintained a unilateral tone following the Eurogroup’s staunch refusal of his latest proposals. That the Greek government is endorsing and hoping for a ‘no’ vote Sunday is arguably the worst kept secret in Europe right now, however daily protests in Athens’ Syntagma Square both for and against the bailout reforms have underscored an inherent rift in the population.
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— Alexis Tsipras (@tsipras_eu) July 1, 2015
To its credit, Greece has largely abstained from being engulfed in riots and chaos that easily holds the potential to exacerbate an already tense situation. Still, with just three days to go until the referendum vote, emotions will likely be running high as the country grapples arguably its biggest decision since entering the Eurozone.
With such a closely divided electorate poised to vote this Sunday in the referendum, many both inside and outside Greece have contemplated the ramifications of each referendum scenario – a ‘no’ vote could open up a new stage of negotiations that ultimately proved fruitless over the past few months, making an already desperate situation that much more precarious and succinct. By extension, the prevailing of a ‘yes’ vote cannot be seen as a panacea, given the political fallout of such a decision.
Eurogroup leaders did receive one early indication already today however, that Greek Finance Minister Yanis Varoufakis would unequivocally resign from his position in the event of a ‘yes’ vote carrying through Sunday. Underscoring this tone in a recent statement to Bloomberg, Mr. Varoufakis reiterated, “I prefer to cut my arm off rather than sign an agreement without debt restructuring.”
As for Mr. Tsipras, it is presently unknown whether he would himself be reconciled to a resignation in the event of the Greek electorate supporting additional austerity or bailout measures. Such a scenario would undoubtedly place him in a contentious situation with leftist hardliners who would be bitterly opposed to any deal with Eurogroup creditors, notwithstanding one that involved cuts to pensions, a reduction of island discounts, and no debt restructuring – all sticking points that have plagued negotiations thus far.
Mr. Tsipras initially rose to power through a wave of support in Greece that championed no additional cuts to pensions and the resolute stance on a number of ‘red lines’. However, with the country suffering in the grip of capital controls and financial uncertainty, it remains to be seen if public opposition to European reforms will continue.
Regardless of the voting outcome, many Eurogroup leaders have asserted that Greece will not be discarded from the European fold, however this has been far from a universal tone throughout the continent. Indeed, German Chancellor Angela Merkel’s defiant tone in the face of recent Greek proposals ahead of the July 5 referendum suggests the stakes have never been higher.