The Greek people have decided to reject any deal with the creditors that might have further austerity linked to it in a referendum which has been criticised for being too hastily (and unnecessarily) called and was viewed as confusing and ambiguous even in Greece. The margin was 61% to 39% in favour of the “no” vote. The Greek leadership campaigned for a “no” vote claiming that it would strengthen their bargaining position in further (as yet unpromised) talks with their creditors. The administration has promised that the banks would open on Tuesday and that they would have struck a new deal with their creditors within 48 hours of the vote.
Meanwhile, back in the real world… The decision of the Greek people is likely to be interpreted by the Eurozone leaders as a vote to leave the Euro. The European Central Bank has suspended ELA at €89 billion meaning that it will not pump further cash into the Greek banking system. The decision and future action will be reviewed later on Monday after a conference call of Eurozone leaders and Eurozone Finance Ministers have taken place. Without additional financial support from the ECB, Greek banks are expected to run out of cash within days. Should they return to full banking activities tomorrow with the lifting of controls, as implied by the promises of Mr Tsipras et al, liquidity may be measured in hours. Having voted against a deal, Greeks are keen to get their hands on their hard currency before Greece can revert to a national currency which will massively devalue.
The Eurozone wants Greece to remain in the club, but the question is just how high a price would they be prepared to pay to see it happen when dealing with an intransigent negotiating partner. The IMF cannot lend any further funds to Greece since it is in default, so any solution must be Eurozone-led. Eurozone leaders must consider how any decision that they take will be viewed by their own citizens who are none too keen to pay for Greek profligacy when they have also had to deal with austerity (to a greater or lesser extent). They also must consider how their actions will be viewed in terms of fiscal responsibility for the Euro itself which is a vastly bigger question than just Greece.
Greece urgently needs a solution; the Eurozone has time on its hands. Already, stories are circulating that medical supplies are running out as exporter demand payment in hard cash to provide them – something blocked by the currency controls the Greek authorities implemented. No exporter is going to be willing to supply goods or services to the Greek state or businesses unless they are paid in full and up-front. The Greek people have spoken…