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5 Things You Need to Know About the Greek Referendum

by Joseph Leigh, Lewis Bassett, Michael Walker & Patrick Fleming

Since coming to power in January, Syriza has presented a serious challenge to the current economic and political order of the EU as well as to the reforms and policies that are fundamental to global neoliberalism. However, under the strain of debt, economic depression and political maneuvering by the Troika, the contradiction between Syriza’s and the Greek public’s desire to reject austerity whilst remaining in the Eurozone is coming to a head. It seems there are two possible resolutions to this contradiction: a capitulation by Syriza should Greece vote Yes in this weekend’s referendum, or the possibility of default which might well pave the way for exit from the Eurozone should the No campaign prevail.

In our last article we attempted to explain the processes that led to the emergence of a radical left government in Greece. In light of recent events, here we attempt to explain the political and economic factors motivating the interested parties and show what is at stake in Sunday’s referendum.

1. Why did Tsipras call a referendum?

The policies imposed by the Troika (composed of the EU Commission, International Monetary Fund and European Central Bank) since 2010 have been devastating for Greece, and Syriza was elected to rid Greece of austerity. However, by the middle of last week it looked like Syriza was ready to accept a deal which committed the government to austerity if it were accompanied by some form of debt relief and a commitment to invest in the Greek economy by the European Commission. Yet the Troika remained unwilling to budge, and Syriza was offered a deal which would have committed Greece to harsh austerity, little investment and, crucially, no debt relief.

If Alexis Tsipras, the Greek PM, had agreed to this deal it would have been impossible to get it through parliament with the support of his party. This would have precipitated the fall of the Syriza government in its current form, and forced Tsipiras to form a more ‘moderate’ coalition with larger neoliberal parties in the Greek parliament. This scenario had been read as the most likely end-game motivating the intransigence of the Troika in negotiations up to this point.

If Tsipiras refused to sign the agreement, it would have precipitated a Greek default, setting off a chain of events which would have likely resulted in an exit from the Euro.

Stuck between a rock and a hard place, Tsipiras called a referendum on whether to accept the Troika’s final offer – in which Syriza would campaign strongly for a No vote.

2. Why have negotiations failed?

Given the intellectual bankruptcy of austerity economics, the Troika’s intransigence is hard to understand. However, there’s a hardcore set of economic and political interests behind the unwillingness of EU leaders to respond to Greek requests for – and the economic realities demanding – debt relief.

The first thing to understand here is that German premier Angela Merkel and the leaders of the rest of the Northern European and Benelux countries don’t want to have to ask their tax-payers to foot the bill for Greek debt. This economic background has been harnessed by German daily newspapers like Die Welt, which is close to Merkel’s CDU party, to promote a racist anti-Greek discourse which explains the crisis in terms of ‘Southern European laziness’ – even claiming that the current Greek population are “not real Greeks” but a “Turkish-molded mixture of Slavs, Byzantines and Albanians” who, in racist terms, are understood as illegitimate members of European civilization. Greeks in Germany have even be subjected to fascist assaults and attacks on their businesses.  In this context both Merkel’s Christian Democrats and their SDP coalition partners gain domestic political capital by taking a hard line when faced by Greek demands. Economic realities are therefore being bypassed by the short-term political interests of elected politicians as a cultural ideology of anti-Greek sentiment has been built up, overlapping with the moral arguments about debt repayment.

In addition, the issue of debt relief poses a political problem for Merkel in particular because the wage repression behind the German economic ‘success’ story means German middle classes and workers are hardly in a position to forget about their significant contribution to the Greek bailout funds. From 2000-10, the average annual growth of wages in Germany’s private sector was 1.7%; nearly half the European average. If Germany were to loosen its terms with relation to the Greek debt, German workers and its middle class would not take much of a material hit. However, if it were also forced to renegotiate its debt with Portugal, Ireland and even Spain, it would be a different story.

This brings us onto what is likely the most significant cause of European stubbornness. Syriza disrupted the European political consensus by bringing a popular leftist government to power on an anti-austerity mandate. If Syriza is seen to succeed this will strengthen other growing anti-austerity electoral movements across Europe – most significantly Podemos in Spain. The kind of politics this new wave of parties represents is anathema to the European establishment, and thus they will do anything they can to destroy it, even breaking the supposedly sacrosanct principles of free-market economics by shutting down the Greek banking system. In reality the referendum is more about political power than it is about economic necessities: Syriza represents an alternative to the prevailing ruling order defended by the Troika, so the Troika hopes to destroy this alternative by campaigning for a Yes vote on Sunday.

3. What has the IMF said recently, and why?

On Thursday the International Monetary Fund released a report which confirmed Greece’s debts were unsustainable, and that it would not be willing to sign off on any future bailout deal that did not include significant debt relief. This is exactly the argument Syriza has been making to the Troika – of which the IMF is an integral part – for the last five months.

Why then has the IMF released a report that goes against the official position of the Troika? And why now? To answer these questions we need to recognise the different interests that prevail within the Troika itself – differences which Syriza has been desperately working to exploit.

The role of the IMF is to lend money to nations in debt crises, with the aim of maintaining global financial stability. The money the IMF lends is provided by national governments and, as a rule, this money always needs to be paid back. To this end, before any country enters into an IMF programme its existing debts will be restructured so that there is a potential for that country to return to growth and financial solvency. In the case of Greece no significant debt restructuring took place because of a perceived risk to French and German banks if they were to be forced to take a significant hit on their dodgy Greek loans.

In bending its own rules to save the European financial system, the IMF has risked its legitimacy in the eyes of its non-European shareholders. The leader of the IMF at the time of the first Greek bailout was Dominique Strauss-Kahn, who had hoped any role in ‘saving the Euro’ would serve his planned bid for the French presidency. The IMF’s current Managing Director, Christine Lagarde, was French finance minister at the time of the first bailout. Therefore, if Greece becomes the first developed country to default on the IMF, its non-European shareholders may see the loss of their cash as evidence the IMF is a hatchet job serving the political projects of its European directors (historically the top-job in the IMF has always fallen to a European, but next year when Lagarde seeks re-election by the IMFs shareholders this convention may well look under threat).

If there is to be a third bailout, Lagarde, to assure her own re-election, will want to present an image of neutrality, making up for the mistakes committed in the first and second Greek bailouts. To this end, the IMF has been lobbying behind closed doors for Eurozone governments to offer debt relief to Greece. However, until this week these conflicts had not become public, with the IMF unwilling to create a public split in the Troika which could strengthen Syriza’s positions in negotiations.

This changed when an IMF report was leaked on Monday, forcing the IMF to release it officially – despite attempts to block such a release from its European members.

4. Does Oxi (No) equal exit?

The fact is that no-one knows for sure. There are many voices within Syriza’s left who would favour an exit from the Eurozone. Prominent among this faction is Costas Lapavitsas, who laid out the economic arguments for this strategy in 2012.

Basically, the argument goes that it is only possible for Greece to rid itself of Europe’s austerity straight-jacket if it ‘goes it alone’. Leaving the Euro would allow for a national Greek currency to lose value relative to the rest of the Eurozone, boosting the competitiveness of Greek industry by making Greek exports cheaper on the European and world markets. Further, the Greek government would have the freedom to adopt the anti-Troika Keynesian policies – borrowing to invest in infrastructure and productivity – that many economists see as the only way to rescue to Greece’s economy from depression.

Syriza’s leadership however has remained adamant that an Oxi (No) vote does not mean exit. Tsipras claims that a popular rejection of the current deal on offer from the Trioka will give him a democratic mandate to fight for a better one. His proposal is as it remained last week, having debt restructuring as a fundamental prerequisite. The problem with this logic is that Syriza already has a democratic mandate to reject austerity, and yet other Eurozone states have appeared unmoved by this fact. Yet according to Greek finance minister Yanis Varoufakis, since the referendum was announced negotiations have moved forward, claiming that Syriza has received new proposals from Brussels which they would be willing to accept. The release of the aforementioned IMF report could also be read as evidence that this strategy is working.

5. Yes or No, what’s at stake?

At this stage, we can’t predict the effect of a No vote. On the one hand, as we have said, Syriza’s line is that Oxi will provide a breakthrough in negotiations which would result in debt restructuring as part of a programme in which Syriza can ensure new bailout funds and ensure future repayment, most likely accompanied by the Troika’s demands for further austerity and reforms. On the other, Oxi may end in exit from the Eurozone, whether desirable to Syriza and the Greek people or not.

Politically a Yes vote would represent a clear victory for the Troika and a potential halt to the emergence of populist leftism in Europe. Most probably, a Yes vote would see Tsipiras resign and new elections be called, in which it is speculated that Greece’s pro-Troika parties would form a united front and enter government. The Eurozone has made clear that if Greeks vote Yes they will do all they can to ensure an agreement along similar lines to their current offer (as long as Syriza is not the party implementing it). In this scenario the Troika would essentially have democratic cover to impose the deal of their choice, and while noises are being made that they may be more generous when dealing with a conservative-led government, recent history doesn’t exactly inspire confidence.

Putting the economic consequences of either referendum result aside, for which anything beyond speculation is seemingly impossible, the political consequences of a Yes vote and the defeat of Syriza are clear. The first great hope of the Europe’s rising democratic movements would be strangled in its infancy. For the time being at least, the challenge Syriza represents to a Europe governed by financial elites would have been contained.

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Published 4th July 2015

This work by Novara Media is licenced under a Creative Commons Attribution-ShareAlike 4.0 International Licence

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