After the referendum – Quo Vadis Greece?

The referendum result in Greece is a resounding victory for Prime Minister Tsipras. He undoubtedly commands huge popularity at home. By contrast, the political establishment that brought to Greece to bankruptcy has been utterly discredited. For many people, voting ‘yes’ was tantamount to condoning the practices of the political elite that brought the country to its knees. Little surprise, then, why they were not convinced by old-style politicians to vote ‘yes’. Amazingly, the ‘yes’ won in no region whatsoever!


The referendum question, however, was heavily loaded. How likely is it that people will voluntarily consent to reducing their own incomes? As a friend of mine who voted ‘no’ said to me, “how can I vote ‘yes’ to further cuts to my salary and my parent’s pension? If I were to do this I will have acquiesced to my own destruction and will have lost my right to protest against further austerity in the future”. Voters showed that they trust Mr. Tsipras to negotiate a beneficial deal for Greece with the country’s creditors. As the PM put it, in his first victory speech last night, his mandate is “not for a break” with the creditors but for a sustainable deal. However, the referendum outcome, although politically empowering for him, will present him with significant problems.

The main problem is that the strong rejection of the bailout proposal creates less room for compromise for Tsipras. The left in his party will be emboldened to become even more intransigent. It is clear that a compromise will involve further painful austerity measures, which, however were rejected by voters in the referendum! The creditors already sound uncompromising and, at any rate, they are unlikely to alter the very logic of the bailout program. What they can offer is a commitment on debt relief (as the IMF recently argued for). The latter, however, will be conditional on Tsipras seriously and palpably committing to reform, something his government has no strong appetite in doing. The reinstatement of the state public broadcasting organization (ERT) and the re-employment of sacked state employees (several of whom had been illegally recruited by previous governments and sacked by the predecessor Samaras government, at the insistence of creditors) are examples not so much of reform as of perpetuating clientelistic practices.

It should be noted that while both creditors and SYRIZA talk about “reforms” they do not mean the same thing. Creditors push for market liberalization and deep state reform, while SYRIZA is bent on offering protectionism, versions of clientelism, and state expansion. Moreover, creditors demand reform in exchange for debt relief, while Tsipras demands debt relief in exchange for reform. It is a classic dilemma (‘who-goes-first’) between parties that do not trust each other, while lacking a superordinate mechanism for resolving it. The referendum outcome has done nothing to resolve this dilemma. Tsipras, on the strength of his mandate, will keep on asking creditors for more concessions, while creditors, mistrusting him for the way he has conducted negotiations in the last five months, will keep insisting on Tsipras playing by the rules. A possible way out would be for Tsipras to do a radical reshuffle to signal his commitment to reform. Dropping his coalition partner ANEL (a populist right-wing party) for centrists and social-democratic MPs would be such a move. But that would require a radical U-turn in his language and orientation that is unlikely. He is not known for bold, unconventional moves, preferring the comfort of his party and its populist allies.

Meanwhile, the banking system is approaching near collapse. Liquidity is in short supply and decreasing by the day, people experience humiliation in queuing up for hours to withdraw 60 euros per day, and the ECB will soon be asked to decide on whether to withdraw, increase, or maintain the same emergence liquidity assistance to Greek banks. The next few days will be critical for Greece and the eurozone. The referendum has pushed Greece nearer Grexit. It has created a dynamic of defying creditors within SYRIZA, from which Tsipras will find difficult to disengage. Like in his election pledges in January 2015, he offered voters all they desired: keep the country in the euro, negotiate hard for a good deal (within 48 hrs!) and open the banks almost immediately. In a country where national pride is important, people were moved by the way Tsipras stood up to creditors. However, they may be surprised to find that national dignity is not so much served by confrontation and protests at rallies but by pragmatically building alliances, searching for compromises, and making credible commitments.