Greek referendum No vote signals huge challenge to eurozone leaders

The Guardian reports: Five years of failed austerity policies in Greece and a total breakdown in trust between the leftwing Syriza alliance and the political leaders of its creditors climaxed in a national vote in which Greeks said no to the spending cuts and tax increases demanded by its lenders.

As the magnitude of the result became clear, thousands of no vote supporters began pouring into the central Syntagma Square in front of the parliament in Athens to celebrate, waving Greek flags and chanting “No, No.”

The sweeping victory for Tsipras, who challenged the might of Germany, France, Italy and the rest of the eurozone, represented a nightmare for the mainstream elites of the EU. With Greek banks closed, withdrawals limited, capital controls in place and the country rapidly running out of cash, emergency action will be needed almost immediately to stem the likelihood of a banking collapse. But it is not clear whether the European Central Bank will maintain a liquidity lifeline to Greece and whether the creditor governments of the eurozone will sanction instant moves to salvage Greece’s crashing financial system.

Germany’s vice-chancellor and social democratic leader, Sigmar Gabriel, said Tsipras had burned his bridges with the rest of the eurozone. But the Greek leader believes he has strengthened his negotiating hand.

Tsipras campaigned for a no vote, arguing that this was the best way to secure a better deal, keeping Greece in the euro while obtaining debt relief from its creditors. The leaders of Germany, France and others stated the opposite, that a no vote meant the Greeks were deciding to become the first country to quit the currency, membership of which is supposed to be irreversible.

It is not clear which view will prevail. The EU mainstream hoped for a yes vote, not only because it would have represented democratic assent to the euro and acceptance of austerity, but also because the Tsipras government would have come under strong pressure to stand down. Negotiations between the two sides have gone nowhere for five months and have become particularly rancorous in the past month as bailout and debt repayment deadlines came and went, with Athens missing a €1.5bn repayment to the IMF. The country now faces a €3.5bn payment to redeem bonds at the European Central Bank in two weeks.

Eurozone confidence in Tsipras is at rock bottom and there is virtually zero faith that he will implement reforms needed to secure cash even if he agrees to them. For his part, the fiery Greek leader as recently as Friday accused his eurozone creditors of blackmail, extortion, and seeking to humiliate his country.

What happens next in the five-year saga that has shaken the eurozone to its foundations is sheer guesswork.

But the Greek vote is a huge blow to EU leaders, particularly the German chancellor, Angela Merkel, who has dominated the crisis management through her insistence on fiscal rigour and cuts despite a huge economic slump, soaring unemployment and the immiseration of most of Greek society.

“The failure of the euro means the failure of Merkel’s [10-year] chancellorship,” said the cover of the latest issue of Der Spiegel, the German weekly. It depicted her sitting atop a Europe in ruins. [Continue reading…]

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