There will be some observers who surmise that with a turnout of 63% of the Greek electorate, or 6.16 million adults, and the immediate resignation of firebrand finance minister Yanis Varoufakis, it will still be business as usual for the rest of Europe and beyond.
The markets have so far largely taken that sanguine view, but it is early days yet. This ongoing crisis has significant potential ramifications for traders far beyond the borders of Greece, and may continue to create more political uncertainty and business risk over the coming weeks.
Since 2010, EUR184 billion (USD204 bln) has been disbursed by the European Commission from the Greek Loan Facility and the European Financial Stability Facility (EFSF). But the EFSF programme for Greece expired on June 30, as did its related financial assistance. Following this, the Greek Syriza-led government introduced capital controls, and has failed to make its latest payments to the International Monetary Fund.
The next key date in the drama is now July 20, by when Greece has to pay back EUR3.5 bln on a bond held by the European Central Bank. If Athens then defaults, it would effectively be almost impossible for the ECB to continue accepting collateral from Greek banks, and EUR89 bln in emergency liquidity assistance would be withdrawn, signalling a potential return to the drachma, and exit from the Eurozone.
If Greece did leave the euro, and reverted to a national currency, it would have to work out an exchange rate, and then get an annual conversion for direct payments, as do all non-euro member states, determined by the ECB once a year.
Crisis summit
A summit of eurozone heads of states has now been called for July 7, where it is expected that divisions of opinion on whether to throw Greece more lifelines will be aired. Germany is the most hard-line opponent of any new negotiations, holding EUR68.2 bln of Greek debt, far in front of France (at EUR43.8 bln), Italy (EUR38.4 bln), and Spain (EUR25 bln), which all have a somewhat more forgiving view of the Greek dilemma.
Spain would consider negotiating a new bailout for Greece, which should remain in the eurozone, economy minister Luis de Guindos told journalists. Athens “has the right to ask for a third rescue package. The Spanish government is open to these negotiations,” he said. “Given the circumstances, from the point of view of the markets it is absolutely necessary.”
The leader of Spain’s anti-austerity party Podemos, Pablo Iglesias, said Sunday's ‘no’ vote had strengthened the negotiating position of the government in Athens, which he was convinced would reach a deal with its creditors in the coming days.
French finance minister Michel Sapin also told Europe 1 radio that a Greek exit from the currency union “isn’t automatic”, and that the Greek government should make new proposals to break the deadlock.
The US administration, which is far less exposed than the EU, is hoping a door is still ajar to further settlement. Russia and China are also watching closely from the sidelines, eyeing Greek gas and port interests, while Moscow may welcome an opportunity to drive a further wedge between Brussels and Athens, although food imports remain firmly off the agenda for now, despite recent overtures from Greek prime minister Alex Tsipras to president Vladimir Putin.
However, Siegmar Gabriel, Germany’s vice-chancellor, said it was “hard to imagine” any new offer being made. Germany’s finance ministers and many senior lawmakers have urged Greece to leave the Eurozone tout suite.
The Conservative government in the UK may also study the lessons of this referendum when it comes to holding its own vote on continuing EU membership terms within the next two years, while the Athens result might likewise harden the resolve of British eurosceptics.
Import dependency
Meanwhile, for ordinary Greek citizens, the daily costs are already severe. Many of the ‘No’ voters came from the poor suburbs of Athens, while the middle classes were more keen to vote ‘Yes’ in Sunday’s referendum.
But the big four Greek banks are almost out of euros after a week of heavy deposit outflows, despite a nationwide daily withdrawal limit of EUR60. Some may cut that to EUR20 today, according to local media, as banks remain shut.
The announcement has led to massive queues for ATMs while consumers have stocked up on food, leaving some supermarkets short of supplies. Greece is highly dependent on food imports. According to data from the Agricultural University of Athens, 29% and 17% of all dairy produce consumed in Greece is imported.
Ekathimerini, citing supermarket chains and food industry sources, said that Greece faces a massive shortage of fresh meat and fish, because soaring demand has combined with import uncertainties.
The news site reported that some supermarket turnover had soared by an estimated 35% in the first two days after the referendum was announced by Syriza, and further observed that “demand for non-perishable foods such as pasta, rice and beans may well lead to shortages earlier than expected”.
Industries that use meats as raw material, such as producers of sausages and cold cuts, are already experiencing shortages, which are hampering operations. And animal feed supplies may be similarly affected, from the Netherlands and other sources. Pharmacies are also reporting tight supplies of essential drugs and medicines.
In a Guardian newspaper report, Vasilis Korkidis, head of the national Confederation of Hellenic Commerce, said that “imports, exports, factories, firms, transport – everything is frozen”. Food staples, such as sugar and flour, were reported to be fast running out last Friday as consumers started to feel the effect of the restrictions, amid panic buying.
Nikos Archondis from the Panhellenic Exporters Association said: “Certain supermarkets are concerned because they cannot forecast how the situation will evolve.” He said stocks of meat, cheese, fruits and vegetables “risk running low”.
CAP payments
Under the Common Agricultural Policy (CAP), Greece is planning 7% Pillar 2 to P1 transfers from 2016 to 2020. Greece was one of around 10 EU member states who called for a further extension of the admissibility period for 2007/13 P2 payments (from the end of 2015 to June 2016), but the Commission said no.
These member states argued that many EU countries struggled to implement schemes in the final few years of 2007/13, due to the ongoing economic crisis, geopolitical developments and adverse climate conditions.
But the Commission replied there was no legal basis for the move, as it would require modifying legislation by way of co-decision before the end of 2015, and the agreed 2014/20 Multiannual Financial Framework (MFF) rules would not permit it.
The Commission did, however, allow an extension to the end of 2015, which is permitted under the CAP rules, and also decided to allow member states to shift up to 5% of their P2 allocation between the three different spending ‘axes’ for 2007/13, for the rest of this year, up from the 3% previously permitted.
It said: “This will allow the national and regional programmes still facing difficulties in spending the existing commitments, to shift a larger volume of funds between ‘axes’ in order for unspent amounts to be better utilised.”
Grexit
Greece would still remain subject to these agreed terms unless it left the EU under ‘Grexit’, which is a last-resort option currently. In conclusion, it has to be underlined that the radical Syriza coalition was democratically elected as a response to the tired old corrupt Greek politics of the past, and it would still ultimately like to compromise by sticking with the Eurozone.
For the left, economist Thomas Piketty, whose book Capital in the 21st Century became a worldwide bestseller, has come out strongly against Germany’s stance in the current Greek debt crisis. If Germany doesn’t find a way to restructure the debt of countries within the eurozone, “its position on the debt crisis will be a grave danger to Europe”, he told German newspaper Die Zeit.
Greece became an EU member in 1981 as a means to reject its militarist past and return to democratic norms and values. The consensus seems to be that it should remain a member of that club, although perhaps not of the Eurozone, which it joined in a former era of economic expansion and robust growth.
