Likely Greferendum Result and Next Steps

4 July 2015 | Philip Ammerman

This is a brief and hopefully inaccurate forecast for Greece in the next 3 weeks.

Sunday, 5 July

The “No” vote will win the referendum. My estimate is based on a range of tangible and intangible factors, including:

The youth vote, from 18-26, will vote “no”. It is dominated by university students and 18-year olds in the first stage of politicisation, where the left-wing politics espoused by SYRIZA predominate.

A very large segment of working-age professionals and blue collar workers (employees or independent workers without a university degree) will vote “No”. They have seen their incomes and jobs reduced or terminated by 5 years of austerity, and blame European policies for this.

A large segment of pensioners, furious at the loss of their pensions, will vote “no”.

The fact that the government has backed the “No” campaign, and has associated “No” with resistance to European “terrorism”, “blackmail” and “pillaging”.

The fact that SYRIZA built and has retained an impressive grassroots electoral machinery, which I have observed is operating at full capacity: I have not seen any equivalent for the “Yes” campaign. SYRIZA has mobilised an entire party machine as well as several government resources including ERT, the state broadcaster, behind a single, charismatic speaker: Alexi Tsipras.

The fact that with deposits blocked, many voters cannot travel back to their home districts to vote, which they have to do according to Greek law and the structure of this referendum.

I do not believe the polling methods often quoted in the press are successfully capturing real voter intentions. The same sizes are too small and probably do not include the right mix of communications channels (notably mobile phone users with pre-paid cards). We have seen the same problem in the January 25th election.

Any election depends on voter turnout. Pro-No voters are far more motivated and organised than the Pro-Yes voters, particularly after the latter have been branded traitors and foreign agents by the Greek Prime Minister, the Speaker of Parliament and a range of other government ministers and public figures.

Monday, 6 July

Prime Minister Tsipras will send his own “telegram” to the Eurogroup, requesting a resumption of negotiations. The Eurogroup will respond that a completely new loan request will be needed, and that the previous offer is off the table. Requesting a new bail-out requires parliamentary votes in many EU Member States (not least of which is Germany), where parliaments will be or are in summer recess.

Many Eurozone governments will refuse to re-start negotiations with a government led by Alexis Tsipras, whom they view as an untrustworthy interlocutor. This is entirely their democratic right to do so, as they are being asked to risk public funds on Greece while simultaneously branded “terrorists” and “blackmailers”. This non-choice may be a straight, public answer (“No third programme”), or it may be disguised by dissembling, policy disagreements and a process slowdown.

The ECB will have to decide whether or not to expand ELA. I believe it will keep the amount stable. Therefore: no solution to the cash crunch.

Greek cash reserves run dry. The ECB must decide if it will deliver cash (specie) to Greek banks, allowing the resumption of deposit withdrawals. If it does a cash lift (i.e. airlifting specie to Greece), then Greek banks are faced with a continued deposit drain.

The Greek banks will remain closed with capital controls in place.

Wednesday, 8 July

By Wednesday at the latest a public decision will have to be made on the solvency of the Greek banking system. The specific choices facing the Greek government and Central Bank of Greece are:

Should the withdrawal limit remain at € 60 per day or be reduced?
Does the Greek banking system retain sufficient core tier 1 capital to continue as a going concern? This decision must be made together with the ECB.
If not, should depositors be “bailed in”, i.e. forced to participate in the recapitalisation of the banking system?
Should a forced recapitalisation affect only the four systemic Greek banks, or all banks operating in Greece?
What other policy choices exist besides depositor recapitalisation? One other alternative is nationalisation. This would mean that SYRIZA-ANEL overtly controls the four system banks directly.

My forecast is that the banks will have to be nationalised, and a depositor haircut implemented. Nationalisation enhances the power of the SYRIZA-ANEL government. As seen from their previous actions, for instance at the state broadcaster or their attempt to hobble the Central Bank of Greece, bank nationalisation is simply the next step in an inevitable process. Nationalisation also creates new sources of patronage, and new opportunities for political narrative.

Absent a cash lift or ELA increase, by Wednesday the “enhanced” forces of law and order will have to be on the streets. There are already many worrying signs of this.

The continuing instability will create further tourism cancellations with visible shortages of food on supermarket shelves and other materials in the wider value chain.

Friday, 10 July

Absent a very clear signal from the Greek prime minister that Greece will accept a revised, harder Eurogroup proposal and proceed with implementation, there will be no progress on a new loan agreement. Any disbursement will have to be prefaced by a vote in Greek parliament (or ministerial decisions) to begin implementing new austerity measures.

By Friday I expect mass demonstrations against the SYRIZA-ANEL government. How these will be handled by the police as well as by the “usual suspects” will say much about the government’s intentions.

Alexis Tsipras and Yanis Varoufakis will have to decide whether they wish to remain in power as democratically-elected leaders. I regrettably suspect they will remain in power.

Monday, 13 July

Any move towards a parallel currency or a government scrip will have to be made announced or leaked by this day.

Next Greek Debt Payments / Rollovers

Greece has the following debt redemption schedule in July according to the FT Greek Debt Tracker:

July 10th: € 2 billion in Treasury Bills

July 13th: € 452 million to IMF

July 17th: € 1 billion in Treasury Bills

July 20th: € 2.096 billion to the European Central Bank

July 20th: € 1.361 billion to Eurozone Central Banks

July 25th: € 25 million to the European Investment Bank

There is no way Greece can repay these amounts absent a new loan agreement. The Greek banks will probably be forced to roll over the Treasury Bills. But Greece cannot repay either the IMF, nor the ECB, nor the Eurozone Central Banks. A massive hard default is therefore close that cannot be ignored by Greece’s creditors.

Further On

I do not expect any Eurogroup agreement to be ready before the end of July, or possibly even later. I do not expect the Eurogroup will continue to negotiate with Alexis Tsipras. There is no appetite for a deal given what has happened this past week and the statements he has made.

The other 18 Eurogroup countries have every democratic right not to lend Greece any more money. Just as Greece has its own democratic right to “end austerity” by tearing up the “Memorandum”. In this case, however, Greece and the Greek people should be prepared for the consequences.

In the interim, the only entity that can “save” Greece is the European Central Bank, either by expanding ELA or by airlifting cash while keeping ELA stable. How long the Greek banking system remains a viable remains to be seen.

The key issue for the ECB is whether Greece repays its July and August instalments, or if some other compromise can be found for this. Absent a July repayment, Greece enters a default with the ECB, which calls into question the entire logic of a European Central Bank. Such a decision would rebound heavily against Greece.

I do not believe the European Financial Stability Fund will “call” the Greek government loans. This would trigger an immediate default. EFSF has more to gain by remaining quiet and letting the ECB deal with the massive policy challenges of a non-cooperative Eurozone Member State.

A “government of national unity” may be one option out of the impasse, but the basic problem that no one believes SYRIZA will implement what it promises remains. This scenario only becomes plausible if SYRIZA splits into its component parts, and some members of parliament support a government of national unity. This is not a very plausible option.

Whatever the case, SYRIZA’s flirtation with “No” will turn out to be extremely costly for the people it claims to want to protect: the poor, the unemployed and the retirees.

Should these predictions bear out (and I sincerely hope they will not), then future analysis of these three weeks in July will probably conclude that the Greek referendum was not a referendum at all, but the mechanism whereby two political parties in Greece took advantage of their administration of government and their majority in the Hellenic Parliament to mislead voters and take lasting control of the state using means that challenge the idea of democracy.

Unfortunately, it will only be the latest of a series of such episodes in the history of modern Greece since its foundation in 1827.

Philip Ammerman