After the Greek government rejected the proposal of Greece’s Creditors last Thursday (June 24), in the early hours of today (Saturday, 27, 00:30 am), Greek PM Alexis Tsipras announced a referendum for the Greek people to decide whether they will accept the proposals of the Creditors, or not. At the same time, the Greek PM said that will ask a small extension of the current program (ending on June 30) so to cover the financial requirements of the banks until the referendum.
This is very important as since the announcement of the referendum, citizens in panic began withdrawing cash from the ATMs. Many machines are already out of cash and the problem will turn to a bank-run, unless the European Central Bank continuous with the Emergency Liquidity Assistance (ELA) to the Greek banks.
The referendum was set for Sunday July 5 and this will be eventually decided later today by the plenary of the Greek Parliament.
It should be noted that in the Brussels summit of Friday, June 26, Greece was offered a bailout program of €15.5 bn funding of which €1.8 bn would be made available before June 30. In this way, Greece would be able to pay the IMF installment of €1.6 bn on time (deadline June 30) and avoid going default. IMF made clear that is not going to grant to Greece any debt repayment extension.
Although it is quite difficult to foresee what may happen in the next days, as the game is “no limit” from both sides, we think that chances for Greece to go to this referendum are not high. Indeed, on the one hand the Creditors may withdraw their proposals at any time, which means that the referendum will have no substance. On the other hand, the “threat” for a referendum may well be the last card the SYRIZA government is playing in its negotiations with Greece’ Creditors.
We should not loose sight of the fact that the Creditors, in this case, are three deeply political institutions. The European Commission, the European Central Bank and the International Monetary Fund. As behind these institutions are strong States such as the United States of America, Germany and France, and given that the stability of the Eurozone is in jeopardy, negotiations between the Greeks and the Creditors are primarily political.
From the Greek government point of view, the problem is economic. The Greeks need money to serve their cash flow requirements, salaries, pensions, medicines, foreign debt and others. The Greek economy is in the fifth year of recession, which every year deepens further. Under the present economic structure, Greece has no way out. Greece needs eternally to borrow more money to cover the deficits of the state and to repay ever growing foreign debt. The country, is in a spiral ending at a black hole.
From the point of view of the Creditors, Greece’s problem has two facets. The economic aspect is quite simple. The Creditors are decided to not contribute to the Greek black hole any more. All what they want is for Greece to eliminate the elements which generate deficits (reduction of the size of the public sector, abolition of cartels and privileges, better regulation so to revitalize the economic activity) and once this is secured, make a substantial reduction of the Greek debt so to make it serviceable in the context of an economy on the path of growth.
The Creditors, after five years of experience, are convinced that with the present Greek political personnel none of the needed structural changes is possible. In particular this is not possible to be done by a Leftist government the political philosophy of which, is based in a large state machine controlling everything.
As to the political aspect of the problem, the Creditors would never allow the minimum possibility to the Leftist government of Alexis Tsipras to claim any kind of victory is this extreme negotiation. Indeed, even a minimum concession to Alexis Tsipras would encourage other similar Leftist parties in other European countries to win in Parliamentary elections. If it happens, it will change the political configuration of Europe, which is based in two political families, the Popular and the Social Democrat. Last but not least, the determination of the USA (which does not forget and does not forgive) to punish the present Greek government for having issued a law, which would allow the release of a terrorist sentenced to life for killing an American Diplomat.