Can Europe Make It?

What happens after the Greek vote

If YES wins, Tsipras could lose everything; if NO wins Tsipras could gain nothing. But, in the longer term, YES would prolong the agony of the country, while NO would show that some democracy is left in Europe.

Mario Pianta
Mario Pianta
4 July 2015


A 'NO' demonstration in Athens. Demotix/Alexandros Michailidis. All rights reserved.In Greece, on Sunday evening, the referendum called by the government of Alexis Tsipras could deliver a success of the "yes" vote.

Finance Minister Yanis Varoufakis announced last Thursday that he would resign; he could not sign a memorandum - a revised version of the one on which negotiations broke last week - which would bring austerity back to the country and would not address debt restructuring.

It would be difficult for the Tsipras government to survive such a result; the new proposals from Berlin and Brussels would make life impossible for the coalition between Syriza and Anel; many members of parliament would not be prepared to vote for a surrender. A change of government in Athens is what European powers have pursued in all these months; now they are close to success and are using all available means to destabilize the country and push the Greeks to a "yes" vote. Once a new government - obedient to the troika – is in place, new proposals from Berlin and Brussels could give the country some breathing space.

In addition to the media campaign, the ultimate weapon used against Greece was the closing down by the ECB of the flow of liquidity towards the Greek economy, which led the Tsipras government to close banks for a week and put in place capital controls.

There is nothing like a bank panic to unleash a demand for order in countries that have experienced well-being. Mario Draghi had tried to push European authorities to take responsibility for their political choices on Greece, but the measures he has taken have strangled the country. It is reasonable to think that Draghi used all his power to prevent Athens from freezing capital movements in previous months. In the name of common rules, hundreds of billions of Euros have fled Greece: the rich and the corporations are now safe with their cash abroad, not waiting in line at banks’ ATMs.

The decision not to stop capital flights has bled the country's economy. In return, €89 billion in emergency liquidity funds (ELA) have reached Greek banks; the flow stopped after the breakdown of negotiations, resulting in the forced closure of banks until next Tuesday.

But even before the failure to pay the debt to the IMF, the ECB had tightened up the requirements of collateral for loans to Greek banks, reducing credit (and increasing its cost) to the country. In addition, according to its rules the ECB cannot lend money to insolvent banks; but Greek banks’ balance sheets contain a lot of government bonds that are not accepted at their full value; as a result, several major banks are now at "almost default" according to rating agencies: no credit is now available for them, even in private capital markets. In short, the senseless rules of the Monetary Union are making increasingly difficult to supply the cash needed to keep the Greek economy going. On Monday the ECB will decide – taking into account the result of the vote – whether to supply liquidity and avoid the collapse of the country’s economy.

But on Sunday the referendum could deliver a success of the "no" vote, a rejection of austerity and of the humiliation imposed on Greece. The policies imposed by Europe have cost Greece a quarter of its domestic product in five years; with a "yes" vote, spending cuts and depression would continue. The Tsipras government has made clear that with a "no" it would have a stronger mandate to negotiate, and that there is no possibility of Greece leaving the euro. But with whom will Tsipras negotiate? On the basis of which proposals? A complex game would then start; Germany’s intransigence may stay, but the blame game against Greece would not work anymore. If Europe’s politics had any democratic content, we would have the resignation not of Tsipras, but of the President of the European Commission Jean Claude Juncker, who has asked the Greeks to vote "yes" and was incapable to cope with the crisis.

The agenda for the new negotiations would then be very different from the decimal points of the primary surplus in the government budget or the VAT tax rates discussed so far. A rethinking of how we behave and make decisions in Europe and the Eurozone would be on the table. It would be a perfect timing to convene a major conference on European debt, to introduce the "mutualisation" on which the Italian economic minister Pier Carlo Padoan is so optimistic.

A common responsibility of the Eurozone on public debt could be introduced, immediately bringing to zero current spreads - as they had been between the introduction of the euro and the crisis of 2008. Part of the outstanding debt could be transformed in perpetual bonds with zero yield, left in the balance sheets of the ECB and European funds. Actions that would be acceptable for international finance. And that would allow the whole European economy to come out – at last - from the depression that began in 2008. With a great sigh of relief – by the way – from the White House in the United States.

The political conditions for such a wide-ranging rethinking are yet to be built: the Socialists and Democrats (and the Greens) would have to clash with the Christian Democrats and Conservatives; France and Italy would have to clash with Berlin; Merkel would have to clash with Schauble; the real economy would have to reverse the power of finance. These are the stakes in the vote of the Greek referendum, and this is a battle that is fought throughout Europe.

The vote in Athens is a turning point. If the "yes" wins, Tsipras could lose everything; if the "no" wins Tsipras could gain nothing. But, in the longer term, the "yes" would prolong the agony of the country, and would give a free hand to the disastrous inability of Germany to govern Europe. A "no" would show that some democracy is left in Europe, and that political change is not impossible.

An Italian version of this article has been published on Friday 3 July in and in the daily Il Manifesto.

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