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Greeks Bearing Debts
Tsipras: Referendum a Week From Sunday

Twitter is abuzz this Friday evening over the shocking news that Greece’s Alexis Tsipras will soon address the nation and call for a referendum for Sunday, July 5.

This comes after Angela Merkel had pleaded with Tsipras directly to accept the offer on the table, indicating that she would not be able to make it any better at tomorrow’s scheduled meeting of Europe’s finance ministers, which was being billed as a last-ditch effort to patch things up.

At first blush, this looks like a smart move by Tsipras: it offers him a chance at doing an end-run around his more strident leftist allies who are hell-bent on rejecting any sort of deal with the EU if it means making any sorts of painful cuts to social programs. Staying in Europe and on the euro remains a popular proposition among Greeks, so an up-down vote on the Troika’s proposal could gain Tsipras the mandate he needs to pull his country through this crisis.

Tsipras has been described as enigmatic and unpredictable, even by European leaders who have closely interacted with him over the last five months, so we can’t yet know to what extent he is a pragmatist vs. an ideologue. But as things stand right now, we surmise it would take a very committed ideologue to plunge his country into truly cataclysmic penury.

Of course, nothing has been officially announced yet at time of writing. Tsipras has been meeting with his cabinet, and will hold parliamentary debates tomorrow. And of course, a lot can (and undoubtedly will) happen between today and next Sunday. The Greeks are known for their drama, after all.

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  • Andrew Allison

    Shocking? Surely you jest? The referendum is a predictable attempt to extend the June 30 deadline. What can and I think will happen between now and a week from Sunday is that the IMF will declare Greece to be in default, the ECB will cut off ELA and capital controls will be imposed. As I wrote a few days ago, this farce will continue until the Eurogroup summons up the intestinal fortitude to pull the plug on Greece, hopefully (for the sake of Eurogroup country taxpayers) sooner rather than later.

    • f1b0nacc1

      While I think your analysis is excellent, let me suggest that another possibility is that the purpose of the referendum is not to postpone the deadline, but to render it moot.
      If the default can be ‘paired’ with capital controls (as seems very likely), then the Greek government will be able to force the issue, and get the leverage to take the steps that it wants (i.e. stiff the creditors, and avoid any domestic consequences for their -the government’s- actions), and avoid being turfed out if they can use the results of a referendum to give them political cover. The creditors will get blamed for the chaos, the hard left will be pacified, and the Greeks can play the next round from a better position. Or at least so goes the reasoning if you believe (as do most of Tsipras’ supporters) that the EU will cave when forcibly confronted.
      Remember, when Cortez set out to conquer the Aztecs, he burned his boats, so his men would be strongly motivated to succeed. We may be looking at a similar tactic.

      • Andrew Allison

        You may be right. It’s been clear for weeks that the gap between what the Troika wants and the Greeks are willing to give is unbridgeable. The referendum and request for a 30-day extension of the deadline were an entirely predictable last negotiating move. What’s going on now is not trying to solve the problem but trying to fix blame.
        The domestic consequences, e.g. lines at ATMs, are already apparent. Greece’s last card is the hope that the ECB will, despite the fact that it would be a blatant of the rules, continue to pump money into the Bank of Greece. My guess is that if the ECB doesn’t decide to throw good money after bad at its Sunday meeting, Greek banks won’t open on Monday and capital controls will be imposed.

        WRT stiffing creditors, there was never any question that Greece could never repay its debt. The real issue is the political ramifications within the rest of Eurogroup. They’ve been playing extend and pretend to try and conceal from their taxpayers what they wrought by socializing the Greek debt, and the veil has finally fallen.

        • f1b0nacc1

          As I have seen often is the case, we are largely in agreement. The key to why this referendum is being done (in my mind at least) is that the Tsipras government knows that it has no choice but to go forward, and it wants to force the populace to commit itself to the same policy, so as to save their own (the governments) position of power.
          As for the creditors (and the EU/ECB/etc.), they have little choice in the matter as well. Forgiving the debt, or even allowing it to be written down in the case of a minor state like Greece would only open the door to a much bigger (and more damaging to the creditors) write-down of Spanish, Italian, or even French debt in the very near future. Holding the line, or at least punishing the Greeks as severely as possible, is the only way to create any disincentive to this sort of thing on a much, much larger scale.
          As a side matter, this whole drama does demonstrate what I have said for some time regarding the truly astronomical level of American debt held by foreigners, particularly the Chinese. It is nothing more than a bluff, and short of the (utterly unthinkable) use of military force to collect it, it exists only as a way of establishing a steady stream of moderate payments (interest), not a realistic collection of payments on the principal. Off-topic, I know, but still interesting…

          • Andrew Allison

            Well yes, now that you bring it up, there are uncomfortable parallels between the utterly irresponsible deficit spending in Greece and the USA. Both countries have made social promises (pensions, healthcare, welfare, etc.) which can’t possibly be kept unless lenders keep providing credit. “If something cannot go on forever, it will stop,” (Herbert Stein)

          • dutchnational

            Well, the both of you were correct.

            Fact of the matter is and what will remain, is that Greece has a trade deficit of some 15 to 20 billion yearly snd, other than tourism, a bit of shipping, no real cash earners and no industrial base. After a default, consumer spending on imports will have to be cut back as there will be no money for imports. A large decrease in purchasing power will develop.

  • Pete

    Well, a referendum probably should have been called a long time ago on a matter as contentious as this one.

    But what a choice the Greek people have to make: Stay in the pan and cook or jump in the fire and burn.

    I’d say if you’re young and unemployed or under-employ, vote to accept the terms of your creditors. If you’re on a pension or close to it, maybe vote no and hope Merkel softens. Who knows?

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