Christian Odendahl, chief economist at the Centre for European Reform in London, explains the ins and outs of the Greek referendum to be held on Sunday, July 4.
Q: What are Greeks voting on in the referendum?
– Greeks will vote on whether to accept (‘Yes’) or reject (‘No’) the latest proposal of the international creditors on reform measures and fiscal cuts. The problem is that this proposal has now expired, together with the credit programme, so the Greek people are asked to vote on a proposal that no longer exists. The referendum thus cannot be legally binding. Rather, it is a political signal on whether the Greek people are willing to accept similar demands in future negotiations.
Q: Why will the referendum be held?
– The Greek government hopes that a ‘No’ vote by the Greek people will strengthen its position in the negotiation with the creditors. Events of the last couple of days, however, show that the opposite will be the case. The other European countries have threatened that a No vote means exiting from the euro – something that the Greek government firmly rejects – rather than a better deal for Greece.
Q: Who wants a ‘No’ vote on referendum?
– The Greek government is campaigning for a ‘No’ vote, as they argue it will strengthen their hand in future negotiations. Those who prefer Greece to exit the euro, both inside Greece and outside, also prefer a ‘No’ vote, as it would bring Greece closer to the exit. It is highly uncertain whether Greece will thrive outside the euro, or be overwhelmed by the task of running its own currency.
Q: Who wants a ‘Yes’ vote on referendum?
– Those who want Greece to stay in the euro want a ‘Yes’ vote, even though they may well disagree with the creditor proposal. It would be a strong signal to both the Greek government and to the creditors that the people are willing to suffer further pain to remain in the euro. With a ‘Yes’ vote, the people would demand that the Greek government and the creditors come back to the negotiating table and find a solution. Neither the Greek government nor the creditors can easily walk away from such a democratic decision.
Q: What has been the EU leaders’ reaction to the referendum?
– Some EU leaders have tried to increase the stakes of the referendum by insisting that a ‘No’ vote means an exit from the euro. But that automatism does not exist. Other EU leaders have argued that the door for negotiations is always open. The reaction was therefore mixed.
Q: What is the possible result of the referendum?
– The error margins on current polls are very high as the Greek population is still digesting the events of the last few days. Currently, the ‘No’ votes are ahead but not by a large margin. I still think the end result will be a ‘Yes’ because the closed banks and high uncertainty that would follow a ‘No’ vote will scare Greeks into voting for the devil they know.
Q: What next if they vote ‘Yes’?
– The Greek government has lost almost all credibility with the creditors, so the current Greek government will either have to resign, or be fundamentally reshuffled, to ensure that the creditors are willing to negotiate in good faith. The timeline for a new agreement, however, is very short. On the 20th of July, Greece needs to repay the European Central Bank (ECB).
Q: If the result is ‘No’, what then?
– This is the most difficult prediction to make. A ‘No’ vote will make it very hard for the creditors to find common ground with the Greek government, as a new agreement needs to be approved by, for example, the German parliament. Both a managed Greek exit [from the euro] and a full confrontation between the Greek government and its creditors are possible.