Positive Scenario

A Happy Ending for Greece?

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  • Why it matters

    Why it matters

    A “Yes” vote in Sunday’s referendum could lead to the collapse of the current Greek government possibly prompting new elections.

  • Facts


    • The vote on Sunday is effectively a vote on whether or not Greece stays in the euro zone.
    • Greece votes in a referendum on July 5 on whether or not to accept the lenders’ latest proposals.
    • In two polls taken late last week, the majority of Greeks said they wanted to accept the creditors’ conditions.
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Despite the gloom following the collapse of the talks between the lenders and the Greek government last weekend, all is not lost.

The surprise decision by Greek prime minister, Alexis Tsipras, to call a referendum for next Sunday could represent a last chance for Greece to stay in the euro zone, if that is what the majority of Greeks really want.

The Greeks are being asked to either accept the proposals from the trio of lenders, the European Central Bank, the European Union and the International Monetary Fund, or follow the recommendation of their leftist government and vote “No.” (What a “No” for Greece would mean, read here)

A week of closed banks and capital controls may persuade many Greeks to swallow more austerity, or it may infuriate them even more.

While Mr. Tspiras and his radical left Syriza party might succeed in appealing to national pride, disgust with the lenders and weariness of the austerity regime, there may be more Greeks who fear the impact of a banking collapse and possible exit from the euro zone.

In polls conducted before the announcement of the referendum but published on Sunday, the majority of Greeks said they favored a deal with the creditors. In a poll conducted by Alco for the Greek newspaper Proto Thema, 57 percent of the respondents said they believed Greece should make a deal with its E.U. partners.

Another poll conducted by Kapa Research for To Vima found that 47 percent favored a deal with the creditors, while 33 percent opposed it.

“If you can see Greece might be cooperating, it would be nuts not to follow through with this.”

Sebastian Dullien, European Council on Foreign Relations

If the Greeks do reject their government’s recommendation to vote “No” in the referendum, then some analysts see the country managing to avoid a Grexit, even if they miss the €1.6 billion IMF payment on June 30, the date the current bailout program also expires.

“We expect the referendum to result in a comfortable majority for the ‘Yes’ camp, and expect no Grexit this year and a lower risk of Grexit in subsequent years,” wrote Citigroup in a note to investors on Monday.

“Just assume that the Greek people next Sunday vote that they want this agreement … I cannot imagine that the E.U. would say, well sorry you are one week late so we won’t talk to you anymore,” said Sebastian Dullien, senior policy fellow with the European Council on Foreign Relations in Berlin.

“If now a majority of the Greeks say we want to stay in and we want to accept the bailout conditions, then it would it be very difficult to imagine how, for example, the German parliament could vote against that.”

Such a deal would after all ensure that Germany might see at least some of the huge sums it has contributed to the €240 billion bailouts to Greece since 2010.

“If you can see Greece might be cooperating, it would be nuts not to follow through with this,” Mr. Dullien told Handelsblatt Global Edition.

Other analysts also predict the Greeks will turn their backs on the current government in the July 5 referendum.


A bank manager explains the situation to pensioners waiting outside a branch of the National Bank of Greece hoping to get their pensions in Thessaloniki. Source: Reuters


“The imposition of capital controls and its immediate visible effects on the country’s economy could play in favor of the opposition’s strategy of blaming Syriza for the chaos,” wrote Wolfgango Piccoli of London-based Teneo Intelligence, in a note. “If Tsipras is defeated in the referendum, it is hard to see how he could remain in power, as the government would hardly be able to pass any new proposal coming from Brussels.”

“His resignation would be the easiest way out of the ongoing conundrum.”

This could then enable the formation of a new government or prompt new elections in late July or early August.

While Syriza is currently the most popular party, it is important to remember that it is really an umbrella group of different left-wing groups. It is conceivable that the more pro-European members could back a unity government in order to keep Greece in the euro zone.

“We are only centimeters away from an agreement. I hope we can leave this dead end and the negotiations doors are still open.”

Pierre Moscovici, E.U. economy commissioner

It is highly unlikely that the current government can secure a deal under the current circumstances.

“It is possible but difficult,” said Holger Schmieding, chief economist with Hamburg-based Berenberg bank, when asked whether Greece could still come to an agreement with its creditors.

“It is very, very difficult with the current government. If there was a ‘Yes’ vote to a deal in a referendum, it would be possible to have political change and have an agreement,” said Mr. Schmieding, who is based in London.

“It would probably be a coalition of all pro-European factions in Greece, including people from Mr. Tsipras’ party,” Mr. Schmieding told Handelsblatt Global Edition.

Mr. Tsipras has come under severe pressure from the left of his Syriza party. It is likely that his decision to call a referendum came once he realized that the hardliners would not sign up to the deal being presented by the lenders, as it did not address the issue of debt sustainability and in effect broke the party’s election pledge to end austerity.

With Mr. Tsipras backing a ‘No,” it seems unlikely that the lenders can somehow still reach a deal with the a government lead by him.

“Clearly creditors would not for a second think that Syriza would be able to implement any of the commission’s agreements,” Nicholas Spiro of London-based Spiro Sovereign Strategy told Handelsblatt Global Edition.

However, former prime minister Antonis Samaras has called on Mr. Tsipras to stay talking with the lenders in an attempt to find a compromise.

“Our country needs to remain in the heart of Europe and in the euro. Mr Tsipras must continue the negotiations,” Mr. Samaras said. “If he can’t do that by himself, he should attempt a big national consensus.”

Meanwhile, the United States is keeping pressure on the lenders to also keep looking for a deal.

President Barack Obama and German chancellor Angela Merkel spoke on Sunday and agreed it is “critically important” to find ways to keep Greece in the euro zone, the White House said. “The two leaders agreed that it was critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the euro zone.”

The US Treasury Secretary Jack Lew on Sunday urged top European finance ministers and the IMF to continue working together toward a “sustainable solution.”

According to the Treasury Department, in calls with the French and German finance ministers and IMF head Christine Lagarde, he said, it was “important for all parties to continue to work to reach a solution, including a discussion of potential debt relief for Greece, in the run up to the July 5th referendum.”

Pierre Moscovici, the E.U. economy commissioner, has said it is not too late to reach a deal between Greece and its foreign creditors that would lead Athens to campaign in favor of staying within the euro zone.

“We need to convince the Greek government to call for a ‘Yes’ vote,” Mr Moscovici told RTL radio station on Monday.  “We are only centimeters away from an agreement,” he said. “I hope we can leave this dead end and the negotiations doors are still open.”

Mr. Dullien of the ECFR argues that while ultimately Greece might actually be better off outside the euro zone, the euro zone and in particular Germany may have overstated the robustness of the currency zone in the case of a Grexit.

“You demonstrate that being in the euro is not irrevocable, that you can leave or be kicked out. And that might cause at some point new capital flows,” particularly from Italy and Spain.

“The two things that are keeping Greece in the euro zone are geopolitics and the persistent uncertainty in Angela Merkel’s mind of what this means in terms of the dangerous precedent setting,” Mr. Spiro said.

“It might come back to haunt us,” Mr. Dullien argued. “Given that the economic advantage of kicking Greece out now is not at all evident, it’s clear that some people who look at the picture a little more analytically might say, well wait one minute before you go down that path.”


Siobhán Dowling has covered German politics and society, including the far-right and immigration, for a decade.  Meera Selva and Gilbert Kreijger contributed to this piece. To contact the author: dowling@handelsblatt.com

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