Greece has spoken on the topic of whether or not to accept an international bailout and the answer has been a resounding “No!” 61.3% of the people who cast a ballot in Sunday’s referendum rejected the terms of the bailout. So, what will happen now?
The truth is that nobody is sure. Prime Minister Alexis Tsipras now has a popular mandate and believes the referendum results will give him a stronger hand at the bargaining table. It is unclear just how much, if any weight the referendum results will carry with Greece’s creditors, Eurozone finance ministers and national leaders. Tsipras has been playing a perilous game of political brinkmanship with the creditors and EU. Although he is declaring victory, the end results are not yet certain. After the drama and histrionics of the last few weeks, the IMF and other creditors might not be in a generous mood when it comes to negotiations. In fact, the deal that Greek voters just said no to is no longer on the table. Tsipras may have overplayed his hand in counting on the results of a domestic referendum to be enough to force the creditors to renegotiate.
The majority of Greek voters, regardless of how they voted today, want Greece to remain in the Eurozone. The question is whether or not that will even be possible now. Greek banks are still closed, although the government has stated they will be opened on Tuesday. Money is running short at a dangerously fast clip. If a compromise between the creditors and government is not reached quickly, the situation could worsen even faster.
Today was an important day for Greece. The people sent a message to the European Union and the nation’s creditors. After five years of austerity, the people have had enough. Tomorrow, however, is a new day. The good feelings and confidence generated by today’s vote will start to dissipate and reality will set in.
Greece’s problems have not been solved.
Greece has defaulted on the IMF loan. As much as it was expected, when midnight struck in Brussels a sense of disbelief seemed to blanket Europe. The truth of the matter is that few people expected the Greek debt crisis to reach this point. Right up until the last minutes before midnight, many people were holding out a somewhat unrealistic hope that an extension or entirely new bailout could be crafted. Greece even took an eleventh hour proposal to the Eurozone, however the appeal was rejected and labeled ‘unrealistic.’ Midnight came and went. Now Greece has the unfavorable distinction of being the first European nation to have missed an IMF payment.
So, what will happen next? As the referendum date grows nearer, uncertainty will grow. The European Union is entering uncharted territory. On the surface, EU financial chiefs do not appear to be overly panicked by the situation. Quite the opposite, in fact. They seem to firmly believe that the defenses they’ve put in place will prevent instability in Europe if a nation leaves the Eurozone. In spite of the defenses being erected, EU leaders have to face the possibility of a European nation beset by financial misery abandoning the Euro currency.
Global markets have, predictably, not responded well to the Greek drama. How they respond tomorrow on the first day of post-default trading remains to be seen. Chances are, there will be much volatility as traders and investors wait to see what direction the crisis takes. There is much speculation about what consequences the default has for Europe and beyond. It’s quite evident that the immediate effects in Greece are very negative. Cash is dwindling and the banks remain closed. Long lines at ATMs and supermarkets are the norm, even though cash machines are, for the most part, already empty.
Beyond Greece, the real danger is that the Greek default will turn out to be a spark that ignites a very large powder keg. Will the default be a ‘Lehman Brothers’ moment, a ‘Sarajevo moment’ or something altogether different? There are a number of scenarios that take the default beyond a pure economic crisis. Some are more frightening and realistic than others.
Tomorrow, I will post more on the possibilities as well as provide more updates. The final Defending Poland article will also be posted tomorrow evening. Apologies for the long delay, but with Greece at the top of the headlines, my focus has been there.
Tomorrow morning when Greece comes awake, her citizens will find the nation’s banks have been closed. The government made the decision Sunday night after the European Central Bank (ECB) froze the liquidity lifeline that has been keeping Greek banks alive for the past six months. Banks will remain closed for the week and perhaps beyond that, depending on the results of the referendum. Further, the Athens Stock Exchange will not open on Monday. At this point, after the events of the past 48 hours, Greece has little choice but to implement capital controls. For the short term, the focus of the Greek government has to be on damage control efforts as the fallout from the standoff with the European Union and IMF. Unfortunately, Greek Prime Minister Alexis Tsipras continues to waste time blaming the Eurozone leaders for the current situation.
The door does remain open for a possible solution to the crisis before the Tuesday deadline, however. On Sunday, the European commission stated that it wanted to offer Greece debt relief. Unfortunately, the accommodation seems to have come too late to temper signs of increasing panic in Greece. Despite the offer, there is increasing worry about what will happen tomorrow. The Greek financial system is teetering on the edge of the abyss. If it collapses, will European financial markets follow suit?
Beyond the financial blowback, officials in Europe and the United States need to begin considering what consequences a Greek default will have on the geo-political situation across Europe and beyond. Today is the 101st anniversary of the assassination of Franz Ferdinand in Sarajevo. His assassination led to the start of the First World War.
Are we possibly seeing the beginnings of a Sarajevo moment in Greece right now?
It now appears that a Greek default is imminent. Over the last few days there was been a flurry of activity aimed at averting the prospect of a Greek default. By Saturday morning the prospect of last minute deal all but dissolved to ashes. On Friday, Greek Prime Minister Alexis Tsipras announced that a referendum will be held on 5 July to vote on the reforms proposed by Greece’s creditors. Greek financial minister. Eurozone financial ministers, however, were not encouraged by the move. They rejected a Greek request to extend a bailout program beyond the 30 June deadline and the Greek Finance Minister Yanis Varoufakis departed Brussels shortly afterwards.
Now, Eurogroup ministers appear to be preparing plans to deal with the damage of a Greek default. Meetings are taking place Saturday evening in Brussels to discuss that very topic. Discussions between Greece and her creditors have broken down in the past and eleventh hour deals have been struck, but this time it looks and feels ominously different.
I will post more on Sunday.
The latest round of talks aimed at averting a Greek default have concluded with no resolution or agreements. This morning, discussion between Greece and its creditors did not produce a deal. With the end of the week approaching, the chances of a solid deal between Greece and its creditors seems to be diminishing rapidly. The optimism that was present earlier in the week when Greek Prime Minister Alexis Tsipras presented a number of payment proposals has evaporated. Greece’s creditors carefully scrutinized the proposals and found the Greek government’s effort lacking. The creditors have laid out a series of its own proposals and Greece has apparently all of them.
The Greek Financial Minister Yanis Varoufakis has stated that discussions will continue. He also hinted that today’s meetings were not productive. Eurozone financial ministers will be meeting again on Saturday as the clock continues to tick towards a possible end of the month Greek default. There is some concern developing that creditors will issue an ultimatum of sorts to Greece. In spite of the positive spin bring placed on this situation by the politicians, a very real chance of an ultimatum exists.
With some luck, Saturday’s meetings will produce more positive results. Time really is beginning to run out now.