Greek referendum no vote signals huge challenge to eurozone leaders

 H/t reader M.G.:

“Another great article, how the Greek vote against the greedy guts gives great challenges to the EU leaders, not just the greedy cow running Germany……Merkel (of course), along with the head of the IMF, and a few others, all will be needing new jobs. This is a huge slap in their faces, well deserved, but the economic pain their investors are now experiencing will get them out of office very quickly. Good riddance.”

Victory by Syriza party of 60% to 40% in polarising referendum presents nightmare for eurozone elites, particularly Germany’s Angela Merkel

No vote supporters hold a banner during celebrations in Athens as results begin to indicate a clear victory against eurozone austerity measures. Photograph: Stringer/Reuters

– Greek referendum no vote signals huge challenge to eurozone leaders (Guardian, July 5, 2015):

Greece delivered a landslide no vote to the eurozone’s terms for the country remaining in the single currency on Sunday night, unleashing a seismic political shift that could derail the European project. The verdict confronts the EU’s leadership with one of its most severe ­crises of confidence and leaves Greece facing potential financial collapse and exit from the euro.

In a polarising referendum called by the radical leftist government of Alexis Tsipras at only eight days notice, Greeks voted by more than 60% to 40% in support of the prime minister, spurning the extra austerity demanded mainly by Germany and the International Monetary Fund in return for an extension of bailout funds.

Tsipras said that Greece “has proved that democracy cannot be blackmailed; Greece has made a brave choice and one which will change the debate in Europe.

“I understand that votors have not given me a mandate against Europe, but a mandate for a sustainable future.” He warned, though, that there would be “no easy solutions”.

Five years of failed austerity policies in Greece and a total breakdown in trust between the leftwing Syriza alliance and the political leaders of its creditors climaxed in a national vote in which Greeks said no to the spending cuts and tax increases demanded by its lenders.

As the magnitude of the result became clear, thousands of no vote supporters began pouring into the central Syntagma Square in front of the parliament in Athens to celebrate, waving Greek flags and chanting “No, No.”

The sweeping victory for Tsipras, who challenged the might of Germany, France, Italy and the rest of the eurozone, represented a nightmare for the mainstream elites of the EU. With Greek banks closed, withdrawals limited, capital controls in place and the country rapidly running out of cash, emergency action will be needed almost immediately to stem the likelihood of a banking collapse. But it is not clear whether the European Central Bank will maintain a liquidity lifeline to Greece and whether the creditor governments of the eurozone will sanction instant moves to salvage Greece’s crashing financial system.

Germany’s vice-chancellor and social democratic leader, Sigmar Gabriel, said Tsipras had burned his bridges with the rest of the eurozone. But the Greek leader believes he has strengthened his negotiating hand.

Tsipras campaigned for a no vote, arguing that this was the best way to secure a better deal, keeping Greece in the euro while obtaining debt relief from its creditors. The leaders of Germany, France and others stated the opposite, that a no vote meant the Greeks were deciding to become the first country to quit the currency, membership of which is supposed to be irreversible.

It is not clear which view will prevail. The EU mainstream hoped for a yes vote, not only because it would have represented democratic assent to the euro and acceptance of austerity, but also because the Tsipras government would have come under strong pressure to stand down. Negotiations between the two sides have gone nowhere for five months and have become particularly rancorous in the past month as bailout and debt repayment deadlines came and went, with Athens missing a €1.5bn repayment to the IMF. The country now faces a €3.5bn payment to redeem bonds at the European Central Bank in two weeks.

Eurozone confidence in Tsipras is at rock bottom and there is virtually zero faith that he will implement reforms needed to secure cash even if he agrees to them. For his part, the fiery Greek leader as recently as Friday accused his eurozone creditors of blackmail, extortion, and seeking to humiliate his country.

What happens next in the five-year saga that has shaken the eurozone to its foundations is sheer guesswork.

But the Greek vote is a huge blow to EU leaders, particularly the German chancellor, Angela Merkel, who has dominated the crisis management through her insistence on fiscal rigour and cuts despite a huge economic slump, soaring unemployment and the immiseration of most of Greek society.

“The failure of the euro means the failure of Merkel’s [10-year] chancellorship,” said the cover of the latest issue of Der Spiegel, the German weekly. It depicted her sitting atop a Europe in ruins.

As the austerity rejectionists partied into the night in Syntagma Square in central Athens, key Greek officials said they believed the Syriza victory strengthened their hands for further negotiations with the creditors since opinion polls also consistently show that Greeks want to stay in the euro and because there is no legal avenue for kicking a country out.

“The first thing is that the IMF report proves that the debt is not viable and secondly that there is a new popular mandate as it would seem from the apparent result of the referendum,” said Euclid Tsakalotos, the chief Greek negotiator with creditors. The report he referred to was an internal document obtained by the Guardian last week, in the runup to the referendum, which supported Greek calls for writing down the country’s unmanageable debt level, a proposal that is anathema to Berlin.

Eurozone officials are to confer on Monday morning on their next moves and Merkel is to travel to Paris for dinner with the French president, François Hollande. Since Tsipras sprung his referendum on eurozone leaders just over a week ago, following an EU summit in Brussels, Merkel and Hollande have struck completely opposed positions. The chancellor has closed down any prospect of negotiations until after the vote took place while the president had insisted on a quick agreement with Greece.

The referendum was highly contested. The no/yes question was complicated, relating to the acceptability of creditor terms for an extension of Greece’s €240bn of bailouts since 2010. What a no or a yes verdict signalled was also highly contested. The Council of Europe democracy watchdog complained that the referendum’s organisation entailed a litany of how not to conduct such exercises. Besides, the bailout terms that voters were deciding on had already been withdrawn by the creditors when the scheme expired last Tuesday without an agreement.

But Tsipras and his flamboyant finance minister, Yanis Varoufakis, have been hugely vindicated following a big gamble which will resonate in Greece and Europe for years to come. And even though the terms which were voted on had already been withdrawn, they have now been so definitively rejected by democratic ballot that the eurozone’s scope for negotiation is effectively narrowed.

Kosmas Papadopoulos, who turned 18 in March, said: “I am voting ‘no’ because we have to say ‘no’ to the rotten system.” Fiddling a large silver earring in his left ear, he said: “I have never known anything else. There must be something better out there.”

On Sunday night voices were already being raised in German banking and trade circles that the scale of the no vote meant that Greece would need to exit the euro. Events rather than legal and political niceties may now determine that outcome, with Greek banks believed unable to reopen without a fresh infusion of cash via the ECB. Its governing council is also to confer today. If it decides not to supply more liquidity to the Greek banking system on the grounds it may be throwing good money after bad as a default looms, the Greek banks will not be able to stay afloat for long, despite claims from the Tsipras government that they will be open this week.

In anticipation of a possible Greek collapse, there is expected to be turmoil when the financial markets open on Monday. Around the world, bankers and investors prepared to meet to discuss the implications of the outcome.

The ECB, which last weekend capped the emergency lending it provides to Greece’s banks, is also due to meet on Monday. The ECB’s move triggered the imposition of a €60 restriction on daily withdrawals and there was concern that, with €20 notes running out, the limit might have to be reduced to €50.

Peter Kažimír, Slovakia’s finance minister, said he was “disappointed” with the result and that Greece’s rejection of reforms “cannot mean that they will get the money easier”.

“We will not go gently into this good night. We stand united and we need to respond to this situation as soon as possible,” he said.

Benoît Cœuré, a member of the executive board of the ECB, hinted at support. “In the current circumstances of great uncertainty in Europe and the world,our will to act in this matter should not be doubted,” he said on Sunday. But that comment was viewed as an encouragement for a yes vote.

According to Der Spiegel, Merkel concluded over the last three weeks of frantic and high-stakes negotiations with Tsipras that the Greek leader was “hard and ideological” gambler. He was “driving his country to the wall”, “playing roulette with an entire country”, she told a private meeting of her Christian Democrats over the last week, the news magazine reported.

The no vote was supported by the hard left and the neo-fascist right in Greece, while the mainstream centre-left and centre-right campaigned for a yes vote.

Tsipras appeared cool and relaxed casting his ballot. “A day of celebration,” he said. “Democracy has defeated fear.”