Credit: Thomas van der Weerd/Wikipedia

Will Greece's referendum gamble pay off?

Tsipras pulls out of talks, issues capital controls and calls a referendum on Eurogroup proposals, but Europe may well call his bluff.

by Adam Gale
Last Updated: 02 Jul 2015

What a mess. After four or five turbulent months, talks between Greece and its creditors over the terms of its bailout collapsed into threats and name-calling over the weekend, only days before the country faces default on its international debts.

Greece pulled out of negotiations on Friday night over European leaders’ insistence on continued austerity measures in exchange for bailout funds. The current bailout ends tomorrow, the same day cash-strapped Greece is due to pay €1.6bn (£1.1bn) to the International Monetary Fund (IMF).

Greek PM Alexis Tsipras’ next move was to call a referendum for July 5th on whether to accept the Eurogroup’s proposals, asking for an extension on the bailout until after the result is known. Europe declined.

As if matters couldn’t get worse, the European Central Bank (ECB) then refused to raise the amount of money it’s providing in emergency liquidity assistance to keep the Greek banking system alive.  Greece preempted the death of its financial system by putting it into a coma, imposing capital controls to prevent international payments, proclaiming a week-long bank holiday and introducing a €60 limit of daily cash machine withdrawals.

All this might sound fairly disastrous, but Tsipras was surprisingly upbeat when he addressed the Greek people on Sunday night.

‘The bank deposits in Greek banks are entirely secure,’ he said, appealing for calm. ‘We must remember that the only thing to fear is fear itself.’ Well, if it worked for President Roosevelt…

Tsipras focused on the Eurogroup’s decision not to grant a week’s extension on the bailout to allow time for the referendum, calling it an ‘unprecedented challenge to European affairs, an action that sees to bar the right of a sovereign people to exercise their democratic prerogative’. It is, in short, ‘blackmail’.

It is in this word that we can see what Tsipras is up to. Greece has one trump card at the negotiating table – the political damage it could cause to the Euro and the European project itself by its exit.

To play this card to maximum effect, it firstly needs Europe to believe it’s actually willing to leave rather than give in, and secondly needs Europe to fear that everyone will blame the undemocratic, uncaring EU when it does.

The EU’s brand is hardly strong as it is right now, with popular Eurosceptic movements across the continent gaining more and more support. The last thing it needs is a Grexit with bells on.

There is, however, a real risk Tsipras’ strategy might backfire, because he’s given his enemies no room to manoeuvre. Can Eurozone leaders back down now without seeming utterly weak to their own peoples? Can they allow the precedent that any one country can impose its will if it stomps its feet enough?  

The harder-nosed negotiators among the European leaders (here’s looking at you, Wolfgang Schauble) will also realise that they have options other than surrender or watch Europe burn. Several early opinion polls suggest the Greeks will actually vote in favour of accepting the creditors’ terms.

A week of economic chaos could well focus their minds, and they might turn on Tsipras for putting pride over their livelihood. Europe could then swoop in to rescue Greece with a ‘Marshall Plan’ of aid, safe in the knowledge that Tspiras and Syriza are effectively buried.    

The stakes are getting higher on both sides, but with only a day to go, no one’s budging yet. This game’s going all the way. But while it reaches its final round, the Greek people are facing economic ruin on a scale even they haven’t seen before. Whoever comes out on top may find they've won a Pyrrhic victory.    

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