With the Greek bailout programme about to end, efforts are underway to reach an agreement that would unlock remaining funds. Without a deal, the EU finds itself in uncharted territory.
The clock is ticking down the hours, minutes and seconds until midnight on June 30, when Greece will lose access to the remaining 7.2 billion euros ($8 billion) in funds available under the current bailout programme.
Greek Finance Minister Yanis Varoufakis already announced Greece would not meet the deadline to pay back debt of 1.6 billion euros ($1.9 billion) to the International Monetary Fund (IMF). That would make Greece the first developed economy to default on IMF loans.
Yet, despite this apparently harrowing scenario, Diego Valiante of the Center for European Policy Studies in Brussels is certain that “absolutely nothing” will happen.
“From a financial standpoint, the situation is still safe,” he says.
Further emergency assistance from ECB forthcoming
Valiante is confident that the European Central Bank (ECB) will decide to continue to help Greek banks at a meeting on Wednesday.
The ECB has been providing Greek banks with so-called emergency liquidity assistance, or ELA, since February.
Following the breakdown of negotiations among the eurozone’s financial ministers on Saturday, the ECB on Sunday decided to keep this emergency cash to Greek banks at its current level of 89 billion euros.
Without this emergency assistance, the Greek banks would have no access to fresh money because the ECB has not been accepting Greek government bonds as collateral for lending to commercial banks since February.
IMF loan ‘irrelevant’ to ECB emergency assistance
But Valiante says whether or not Greece pays back the IMF on time has no consequences for emergency assistance coming from the ECB. Europe’s central bank, he stresses, could terminate this assistance only if its supervisory board determined Greek banks to be insolvent.
“The termination of ELA cannot happen as a result of an assessment of default of the country,” says Valiante, adding: “Only if, at some point, the supervisory body of the ECB determines that Greek banks are not solvent anymore could the bank’s governing council terminate ELA.”
That situation, says Valiante, could arise if Greece fails to pay back parts of the debt held by the ECB – an assessment shared by the Financial Times’ Brussels correspondent Peter Spiegel.
‘Capital controls may last years’
Valiante is sure Greek banks have “more than a month of liquidity,” even if the ECB decides against increasing emergency cash on Wednesday. That is under the condition that if and when Greek banks open again after the referendum planned for July 5, capital controls introduced by the Greek government will stay in place.
Greek Prime Minister Alexis Tsipras introduced capital controls on Sunday, limiting ATM cash withdrawals for Greek debit card holders to 60 euros per day, as well as imposing a bank holiday until July 7.
“Once you introduce capital controls, the credibility is gone,” says Valiante, “so capital controls will be there maybe even for years.”
This was the case with Cyprus, where capital controls introduced in spring 2013 remained in place until April of this year.
Discussion about euro exit
Financially speaking, says Valiante, with capital controls in place at current levels and continued emergency cash from the ECB, there is still time to find a solution to the Greek crisis.
At the political level, the specter of a possible Greek exit from Europe’s common currency arose after EU leaders warned Greek voters on Monday that a ‘no’ in the referendum would mean a ‘no’ to the eurozone and the EU.
Legally, however, there are no provisions in EU treaties for a eurozone member to leave the currency union.
Greek Finance Minister Yanis Varoufakis also made this point, saying that Greece would consider an injunction with the European Court of Justice should it be forced to leave the euro.
“The Greek government is right in saying there is no way to get us out of the eurozone,” says Stefan Gehrold, who heads the Konrad Adenauer Foundation in Brussels.
He adds that for him, the more pressing question is whether a Greek default is possible while Greece remains a member of the eurozone. “We’ve had similar events in the past when US state governments defaulted while continuing to be in the same currency zone,” he says, “So I think it is possible to keep Greece in the eurozone.”
Greek referendum divides Nobel economists
The question of how to vote in Greece’s eurozone referendum has split Nobel economists. Joseph Stiglitz and Christopher Pissarides jointly called for debt relief earlier, but now come out on different sides of the issue.
The escalating Greek debt crisis has top economists take opposing views on how they would vote in the upcoming referendum called by Athens for next Sunday. Three Nobel economics laureates took to the media in the past two days to explain their views on what has been called the ‘Greferendum.’
Joseph Stiglitz, in a piece for The Guardian, analyzed the economic circumstances surrounding the call for a national vote before weighing both options. “It is hard to advise Greeks how to vote on July 5. Neither alternative – approval or rejection of the troika’s terms – will be easy, and both carry huge risks”, he wrote.
But a yes-vote, added Stiglitz, “would mean depression almost without end”. While it might finally enable Greece to get debt relief and assistance from the World Bank in the next decades, citizens would have to pay a heavy price, noted Stiglitz.
The result could be a “depleted country – one that has sold off all of its assets, and whose bright young people have emigrated”.
End the ‘torture’
Voting ‘no’ meanwhile, “would at least open the possibility that Greece, with its strong democratic tradition, might grasp its destiny in its own hands,” argued Stiglitz. While Greece’s future may not be as prosperous as its past, he noted, it is to be preferred over the “unconscionable torture of the present”.
“I know how I would vote,” Stiglitz closed, leaving the reader without a doubt to what its author meant.
Meanwhile, Christopher Pissarides, a Nobel Prize-winning economist, who earlier this year together with Stiglitz penned an open letter in the Financial Times calling for Greek debt relief, came out on the opposite side of the argument.
In an extensive interview with DW, he called upon Greeks to vote ‘yes’ in the upcoming referendum. “I would vote yes and I would encourage everyone that I can to vote yes, because a no-vote would be a complete dead end which would lead eventually to a Grexit.”
Pissarides argued that with a no-vote he could not see how Athens could remain in the euro and get liquidity from the European Central Bank to get the economy moving again. “Greece would be going backwards and backwards into more recession.”
He also voiced deep frustration with the Syriza-controlled Greek government’s handling of economic affairs. “And I have to confess now that I see the whole development of Greek economic policy since the election of Syriza in January, it’s really one long story of economic mismanagement.”
Paul Krugman, another Nobel economics winner, in his New York Times blog, broadly sided with Stiglitz’.
“I would vote no, for two reasons,” offered Krugman. “First, much as the prospect of euro exit frightens everyone — me included — the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that?”
The second reason why Krugman would vote ‘no’ is because he finds the political consequences of an affirmative vote “deeply troubling”. “The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals.”
OPINION: Tsipras, an amateur and a dilettante
Alexis Tsipras no longer has the best interests of the Greek people in mind, but rather the survival of his Syriza party. Fear lurks behind the scenes, writes Spiros Moskovou.
Something is rotten in the state of Greece. In early February, Greece’s freshly elected populist government promised to keep the country in the eurozone, while at the same time negotiating socially acceptable repayment conditions with international investors.
It is now the end of June and the government has ordered Greek banks temporarily closed and initiated capital controls. Desperate pensioners stand in line to withdraw cash from often empty ATMs. The situation has spun totally out of control. Despite that fact, the government is organizing a referendum for this coming Sunday in hopes of legitimizing its failed tactics – the government accounting office estimates the cost of the referendum will be around 110 million euros ($124 million).
A strange understanding of democracy
At this dramatic final hour, Prime Minister Alexis Tsipras has articulated an understanding of the democratic process that is utterly baffling to other European democracies. On Monday evening, in a lengthy interview with ERT1, Greece’s main public television channel, he proclaimed something truly absurd: If Greek citizens vote “yes” to accepting the demands of creditors, he will respect the result of the referendum, but will not implement the plan.
However, if a majority vote “no,” rejecting the demands – a result for which the government has mobilized all of its rhetorical arsenal – he feels that Athens would then have a strong hand in further negotiations.
Thus, before voters have even gone to the polls, their inexperienced prime minister – who consistently refers to his popular mandate – has announced that he will not respect the will of the people in Sunday’s referendum, if it isn’t to his liking. On the other hand, should the Greeks vote as Tsipras hopes they will, he intends to use the referendum as a weapon against creditors in the ongoing negotiations that he himself walked out of last week.
A dilettante becomes a fateful figure
Infantile amateurs now have the say in a country that has long prided itself as being “the cradle of democracy.” The otherwise so charming prime minister is not working in the best interests of the people, but simply for the political survival of his party. Just like the established parties that he railed against as a candidate – and that were so brutally punished in January’s election – the ones that had been sailing towards this bankruptcy for decades.
Yes, by all estimation, Alexis Tsipras, who has become a fateful figure for Greece and possibly the entire European Union, talks pure nonsense. Yet that image is misleading. Greeks tend to swagger when they are scared and agony is spreading behind the facade of the prime minister’s palace.
Behind closed doors, ministers have begun to urge a change of course, and on Monday a group of Syriza’s European parliamentarians distanced themselves from the official party line. On Tuesday evening Athenians marched in demonstrations under the motto, “We want Europe!” Representing a last, homemade chance at another, better Greece.