Greek referendum: what happens now?

On Sunday, all Europe had its eyes turned on Syntagma Square, where Greeks were writing a new chapter of the European history. With over 90% of the vote counted, more than 61% of ballots have been cast for “Oxi”/NO in the bailout referendum that rejected deeper austerity measures, proposed by European creditors.

 

“You made a very brave choice” declared the Greek Prime Minister in his remarks after the vote. “I am fully conscious the mandate you’ve given me is not a mandate against Europe, but a mandate for finding a sustainable solution and to take us out of this vicious cycle of austerity“, he stated.

 

Nevertheless, different reactions came from Greek’s creditors, who interpreted this as a vote on Greece’s membership of the euro.

 

As matter of fact, while the referendum result became clear, Germany’s Deputy Chancellor, Sigmar Gabriel, took a hard line, stating that renewed negotiations with Greece were “difficult to imagine” and that Tsipras had “torn down the bridges” between Greece and Europe. Firm declarations came also from the President of the European Parliament, Martin Schulz, who declared that “the Greek people said no, but 18 other members agreed on the proposals of which Greeks said no.” Moreover, Schulz called for a special humanitarian aid program for Greece in order to face “difficult and even dramatic time” to come.

 

In this context, EU leaders are called to weight their next moves, after the resounding Sunday’s rejection of their austerity measures.

Thus, the coming days will see an outbreak of crucial meetings across Europe.

 

After the referendum result, Donal Tusk, the European Council President, convened an emergency Eurozone Summit on Tuesday. And yesterday, the German Chancellor Angela Merkel and French President François Hollande met to “jointly assess the situation after the Greek referendum and to address the continuation of Franco-German close cooperation in this matter”. So far, the two leaders have taken different approaches: while the Chancellor Merkel closed the door to further talks before Sunday’s referendum, Hollande wanted a quick agreement.

 

Meanwhile, the Greek Prime Minister Tsipras, whose first priority is now to maintain the financial stability of the country, stated that Greece is ready to immediately go back to the negotiating table with creditors. But, Eurozone officials seem to shoot down any prospects of a quick resumption of talks.

In this context, the resignation of Yanis Varoufakis, the Greece’s finance minister, is a clear signal that Athens wants a deal with its European creditors. Indeed, even if it is far from clear, the Varoufakis’ absence from Eurogroup meetings could be potentially helpful to Tsipras in reaching an agreement.

 

Thus, will Greece and its creditors finally reach an agreement to attempt to solve this crisis? Or will this situation escalate to the point of pushing Greece out of the Eurozone?

 

European leaders are calling on Athens to make the first move.

As the President Schulz said: “It’s now up to the Greek government to make proposals that would convince the Eurozone and the institutions in Brussels that it is necessary, possible, and even effective, to renegotiate. This depends on the proposals coming from Greece.”

 

Currently, the Damoclean sword hanging over Greece is that banks are expected to run out of cash by the middle of the week, if not sooner, and in such a fragile state, a collapse cannot be far. Thus, all eyes are on the ECB, which will have to decide whether to continue to extend its emergency financial lifeline to Greek banks.

The ECB paused its emergency liquidity assistance (ELA) before Sunday’s referendum. Although the result is now clear, the ECB will not act ahead of European leaders, but it will probably wait for a direct political signal. But time is running out for Greece and, in the absence of new emergency lending from the ECB, several Greek banks could face insolvency this week.

Unable to repay debts, like the upcoming €3.5 billion due on July 20, and having difficulty paying salaries and pensions, the Greek government might be forced to issue a parallel national currency and that might mean the beginning of the end of Greece’s euro membership.