Greece at a make or break point
I had thought the storm between Greece and its creditors would end last week. Instead, things went upside down. After a dramatic meeting with his fellow eurozone leaders, Greek Prime Minister Alexis Tsipras left Brussels last Friday and returned to Athens to announce a surprise referendum for July 5. He had to do that, he said, because he wanted his people to say a loud “no” to the “unacceptable terms and ultimatums imposed by Greece’s creditors.”
At a stormy session where the opposition blamed Tsipras for effectively placing the country outside the euro zone, the Greek Parliament backed his proposal by a comfortable majority. The decision, though, stunned Greece’s eurozone partners who predictably focused their fury on the Greek prime minister. The German Finance Minister Wolfgang Schäuble accused Tsipras of leaving the negotiating table and returning to Greece “while leaders and Chancellor Angela Merkel were making unlimited efforts to solve the problem.” He added, “This not only creates confusion, it is also sad.” Similar statements came from other eurozone officials, although none went so far as to predict a definite “Grexit.”
In his address to the parliament, Tsipras suggested that the referendum is “part of the ongoing negotiating process” for a new, more lenient bailout package and that Greece is still an equal eurozone member.
However, things have nearly become surreal after five years of a failed austerity policy. Greeks see that the Tsipras government, after six months of ineffective negotiations with its creditors, could not reach a final decision. And all that, literally, at the very last moment, when the current Greek bailout program ends June 30, the very day that Greece needs to repay the IMF 1.6 billion euros!
So, this is really a critical week. Greece’s infuriated creditors refused to extend the deadline of the bailout program until after the referendum. Actually, they claimed that the referendum would be pointless because there is no agreed bailout program anyway.
In the midst of an atmosphere of growing polarization at home, with the opposition working hard to use this referendum as an opportunity to say “yes” to stay in the eurozone and force Tsipras out, the Greek government may find it difficult to persuade enough people to go to the polls for a “proud no to the unacceptable proposals.”
With the liquidity of the Greek banks at worryingly low level, all eyes are at Mario Draghi, as it is up to him to decide whether the European Central Bank will continue to support the Greek banks after the expiry of the program, June 30. If he decides not to support the Greek banks, they will have to close their doors to their customers. This might scare people who will either not participate in the referendum or vote against Tsipras in order to remain in the eurozone. Whatever the coming week will show, it will be of vital importance for Greece.