The people have spoken and they have done so clearly. With more than 50% of the precincts reporting, the Greek electorate appears to have decisively rejected the proposed bailout plan for the country, with approximately 61% voting “NO” and the remaining 39% opting for a YES. This is a clear “No” to the status quo in Brussels and Athens. After 5 years of solid budget cuts and fiscal adjustments, accompanied by higher taxes and decreasing standards of living, this verdict by the Greek electorate appears somewhat expected.
Of course, this all followed after the country became the first industrialized nation on record defaulting on a International Monetary Fund loan – joining such illustrious paragons of fiscal responsibility like Zimbabwe and Sudan. This was subsequently complemented with the imposition of capital controls, meaning that ordinary Greek citizens now face limits on the money they can withdraw and transfer. Now, had this been any other referendum campaign, there might actually be the prospect of a new deal between the Hellenic Republic and its creditors.
However, as Prime Minister Alexis Tsipras is likely to find out very soon, this campaign was anything but normal. Here’s why:
1) Trust: Diplomacy 101 essentially states that the basis of any negotiation has to be two components – trust and the conviction that both sides are negotiating in good faith. That trust appears to have rapidly evaporated. Jean-Claude Juncker, the European Commission President, bitterly complained about feeling “betrayed” by the left-wing government led by Tsipras. Similar statements were made by the President of the Eurogroup, Jeroen Dijsselbloem and even the normally unflappable Angela Merkel, Chancellor of Germany and arguably the key player in this drama. Add to that the economic brinkmanship favoured by the Tsipras government in recent days and the anger in Brussels, Berlin and elsewhere makes much more sense.
2) Referendum: The announcement of the referendum was perfectly constitutional. But it was ill-considered, rushed and didn’t leave enough time for the electorate to consider its options. The long referendum question essentially asked Greek voters to decide on approving a bailout proposal, not an actual agreement signed by the Greek government. Confusion reigned about whether the public was asked to decide on approving an agreement, leaving the Eurozone or even withdrawing from the European Union. This wasn’t made better by statements from the European Commission President and others who conflated this with Euro membership, only for that to be followed by statements that suggested that negotiations could still resume. The “NO” was placed on top of the ballot, essentially suggesting how people should vote. Worse though, the Greek cabinet threw around terms like “blackmail”, “terrorism” and “humiliation” – about the very same partners with whom it hopes to secure that agreement. How can those partners ever return to the table without anything other than a clear rejection of the Greek government’s approach?
3) Voters: The banks are closed. Pensioners cannot withdraw their money. Food is running short, and tonight Greece appears to only have enough money until Tuesday. Then what? We only know that right now there is no further bailout deal for Greece – and that the poisoned chemistry between several main actors in this crisis doesn’t portend well for another agreement. We also know that the mood in several EU countries, including Germany, Finland and a number of Eastern European countries regarding a bailout is souring. We also know that Plan B is needed. Finally, we also know that Greece has a crushing debt burden that could cripple the country’s economy for years (some pessimists say: decades) to come.
What to do? Well, compromises will have to be made. The creditors should sit down and agree to conditional debt relief for Greece. The country deserves a fair chance to recover from years of crisis. A crippled Greece can’t repay its loans anyway, so the smart thing to do is for the creditors to cut their losses and move on. It will help the country regenerate itself properly without a massive debt and make a fresh start. However, that can only come with certain riders attached. First, debt should be forgiven in four phases encompassing 25% of the debt each. The first condition should be the country’s gradual exit from the Eurozone. Of course, the EU should (in the spirit of standing together) provide the emergency funding that will be needed to stabilize the Greek economy whilst it prepares and executes its exit from the Eurozone.
The better-planned the currency transition to a New Drachma is, the more minimized any effects will be. Voters in other Eurozone countries are more likely to be amenable to province emergency assistance to Greece, if they know that it will be limited in terms of time, ambit and funding. The IMF should completely leave the picture – it’s unpopular in Greece and introduces an external element into a European crisis that only complicates a solution further. The emergency funding should last for 18-24 months until Greece is well past the introduction of its new currency.Provided it fulfills reform conditions (such as a modernization of its public sector, shrinking the civil service, fighting tax evasion etc), the remaining 75% should also be forgiven during the transitional period. The faster Greece reforms, the better for its debt relief.
To secure the deal legally, the EU Treaties could be amended to guarantee Greece an opt-out from the duty to adopt the Euro, similar to the ones secured by the United Kingdom, Sweden and Denmark. Further, express withdrawal provisions from the Eurozone should be added to the Treaties – since the legal uncertainty about the possibility to withdraw (and whether overall EU membership would be affected) causes much of the chagrin that has been seen in the Greek debt crisis. Just because one ignores a problem doesn’t make it go away. Essentially, the aftermath of the crisis would be the perfect opportunity for the Union to enshrine such an exit clause and transitional provisions in its legal framework. In the long term, Member States might want to think about making Euro membership optional, rather than a requirement of EU membership.
An Imperfect Union – with much to offer
Finally, there has to be a sea change inside the EU itself: Europe is important. It has ensured our prosperity, security and freedom for most of the time since the Treaties of Rome were signed. But we also need to be clear about one thing: Europe isn’t about a single currency, it’s about a common set of values we defend, it’s about respect towards one another and cooperating on the big issues of the day. You’re no less European if you don’t wish to adopt the Euro, and vice versa. For the single currency to work, it has to work for each Member State concerned. However, if a country has to strip itself bare to afford that single currency, maybe the price is just too high.
Leaving that aside, though, there is much to be proud of – even in this imperfect union of ours that is trying to find its voice. Whether travel, scientific and educational cooperation, roaming charges, structural subsidies to weak regions, raising environmental standards or enforcing rules of fair competition across the Continent, this EU does great work for its citizens. Yes, there is much that needs to be fixed about this Union – the way its institutions work, the participation of its citizens in what this Union does and the manner in which it deals with issues like bank supervision and energy policy. But by and large, this is a project worth defending, cherishing and supporting.
What is needed now is a forceful, persuasive, thoughtful and positive articulation of the case for Europe and a reformed European Union – not necessarily a political union, but one in which our Member States work together on the big issues of the day. Like climate change. Like human rights. Like fair and free trade. Like bringing the promise of economic prosperity into the most blighted corners on Earth. That’s who we Europeans are in the 21st century. That’s the kind of leadership that’s needed to keep the Le Pens, Wilders and all those other naysayers at bay, who would have us believe that the things that divide us outweigh those that unite us.
Tonight’s referendum result is a great opportunity for political leaders and citizens alike to take stock. Let’s hope that cooler heads shall prevail in the days ahead. The Greek crisis, like much else, defies simple solutions – but respect for one another and a healthy dose of realism would probably do the trick.
UPDATE (6 July 2015): It appears that Mr Varoufakis has now resigned as Minister of Finance. That should make negotiations between Greece and its creditors somewhat easier. On a different note, turnout in the referendum was merely 62.5% – a rather unflattering reflection on the haphazard manner in which this plebiscite was thrown together, the unclear question and the short notice given to many voters, including Greek residents abroad (who, according to election law, have to return to Greece to cast their ballots).