For the Greeks, there is nothing worth celebrating

5 Jul 2015

Jonathan Eyal
Europe Correspondent

With most of the ballots in their referendum now counted, it is clear that the people of Greece have rejected the terms of an international financial bailout, potentially putting the debt-crippled country on course to leave the Euro single currency zone and plunging the rest of Europe into one of its biggest political crisis in decades.

The 61 percent share of the votes secured by the "No" campaign has confounded opinion pollsters who predicted a much closer referendum result, and represents a significant personal victory for Prime Minister Alexis Tsipras, who called on his people not to accept the higher taxes and pension cuts demanded by Greece's creditors, which include the European Union and the International Monetary Fund.

The people of Greece also seemed to have accepted their prime minister's reassurance that the snub which they have now delivered to the rest of Europe won't result in the country's ejection from the continent's financial institutions, but merely provide Greece with a better bargaining chip and the chances of a better deal which will provide Greece with extra credits, while imposing no further economic hardships.

"We've proved that democracy can't be blackmailed, that your wishes have to be taken into account", Prime Minister Tsipras told his nation in a televised address soon after the result was known. And voters responded with jubilation: tens of thousands thronged into the centre of Athens, the capital, waving flags and singing patriotic songs. But the celebration will be short, for the country literally has only days to avert an economic meltdown of catastrophic proportions.

[Actually, all you have proven is that people do not like bitter medicine and if you give them an excuse to believe that they can pass on the bitter medicine, they will.]

Greece's banking system is already bankrupt: controls on the movement of capital have been in place for a week, and ordinary citizens are unable to withdraw more than €70 (S$ 104) from their own bank accounts each day. A decree issued immediately after the referendum polls closed added another, and more sinister restriction: safe deposits which Greeks hold in banks, and which often include currency or other valuables, can no longer be accessed without government approval, a prelude, perhaps for a government seizure of banking assets.

The only way the Greek banking system can return to normal is if the European Central Bank (ECB) continues to extend credits. But that is unlikely to happen unless the ECB believes that a new bailout deal, similar to the one the Greeks have just rejected, is in the offing.

German Chancellor Angela Merkel, who as leader of Europe's single biggest economy is central to any negotiations with Greece, has called an emergency European summit for tomorrow (Tuesday) in order to coordinate the continent's response. But if Greek Prime Minister Tspiras believes that this would be his moment to strike a favourable deal to his country, he is likely to be sorely disappointed.

For the German Chancellor is reported to be furious with Mr Tsipras, and under great pressure from her own parliament not to relent to the Greeks. Mr Sigmar Gabriel, Germany's deputy chancellor has said new negotiations with Greece are now "difficult to imagine" after the No vote in the referendum. "With the rejection of the rules of the eurozone ... negotiations about a programme worth billions are barely conceivable", Mr Gabriel added.

Chancellor Merkel remains eager to avoid a Greek collapse. But she won't be humiliated by Greek demands, which is how any deal concluded after the Greek referendum will be interpreted. So, the only chance of an agreement is one in which the Greek accept conditions no different from those they have just rejected.

The snag for Greece is that, unless it gets any deal which entails an injection of cash within the next few days, as well as the promise of around €10 billion of extra credits by the end of the week, the country will slide out of the European monetary system, regardless of what its leaders want or the rest of Europe is prepared to contemplate.

Mr Tsipras should savour his immediate electoral triumph. For he won't have much else to celebrate during the rest of this week.