Will increased tension between Greece and its creditors lead to a potentially destabilizing Greek referendum on austerity measures or membership in the euro?
In a March 12 interview on Australian television, German finance minister Wolfgang Schaeuble raised the possibility of an unplanned Greek exit from the Eurozone. "As the responsibility, the possibility to decide what happens only lies with Greece, and because we don't exactly know what those in charge in Greece are doing, we can't rule it out," Schaeuble told Austrian broadcaster ORF when asked about the prospect of a "Grexident."
Concerns over Greece's future in the Eurozone have intensified in the past two weeks, despite last month's decision to extend the country's bailout until the end of June. Since then, progress has been hampered by defining the reforms the Greek government will agree to implement in exchange for further assistance, while Greek Premier Alexis Tsipras is facing strong dissent within his governing Syriza party. At the same time, the Greek premier and other members of the government have been fueling frictions with Berlin by proposing anti-austerity legislation, such as measures for the so called ''humanitarian crisis'' and demanding World War II reparations from Germany.
But the problems do not end here. Representatives of the rebranded Troika are back in Greece to discuss the country's estimated 2 billion euro funding gap as well as reforms. Greece has an estimated 6 billion euros of loans that must be paid in March, including 1.5 billion euros to the International Monetary Fund (NYSE:IMF). At the same time, a fall in tax revenues and the time constraints forced the Government to tap pension funds and public entities and delay payments to government suppliers.
Where will this current instability end? Is a "Grexident" likely at this point, or are such statements simply a show of strength?
Source: Financial Times, March 10 2015
At first sight, the latter seems more likely. First, the term ''Grexident'' is simply meaningless. What kind of ''accident'' are we talking about? Will the European Central Bank (ECB) cut emergency funding to Greece? They do not seem to want to. For the second time since the election of Syriza, the Central Bank raised the level of emergency liquidity assistance to Greece's banks. The German finance minister's statements should probably be interpreted as a warning against any unilateral measures.
Furthermore, it is not Wolfgang Schaeuble who has the last word, but Angela Merkel. Following Schaeuble's statements, Merkel's spokesman Steffen Seibert stated that the issue has not descended into a "private feud," before adding that the "goal of the German government, the Chancellor, and the finance minister has been since the outbreak of the crisis to preserve the Eurozone as a whole - with existing members - and to stabilize it." This has been a very consistent position, and no change is likely at the moment. According to Euroinsight, Germany may be willing to consider a change if "negotiations reveal fundamental differences." The report, however, does not specify the "fundamental differences" and presupposes that Germans and Greeks do not at the moment have any such differences. For any observer of the Euro crisis, the last statement is odd to say the least.
This leaves us with the most likely scenario, which is a referendum on specific government policies and not euro membership. Government officials such as finance minister Gianis Varoufakis, government spokesman Gavriel Sakellaridis, and even Premier Alexis Tsipras have left this possibility open. But is this scenario a likely one? To answer this question, we need to look at the developments following the extension of the loan agreement on February 20.
Following the February 20 agreement two things have happened. First, disappointment among Syriza MPs over the February 20 deal forced Tsipras to postpone indefinitely any idea of putting the February 20 agreement to a parliamentary vote, since such a move would expose the divisions within his own governing majority. This was followed by Tsipras's intervention at the party's central committee in an effort to strike a new balance. Specifically, Tsipras announced the presentation of five new parliamentary bills including ones for: addressing the humanitarian crisis, rearranging the payment of tax arrears to the advantage of lower-income taxpayers, a ban on people's main residences being seized because of debts, the constitution of a commission of inquiry into those responsible for signing Greece up to the memorandum, and the reinstatement of the public broadcaster. Additional measures include the setting up of an international commission over the legality of Greece's public debt and the cancellation of the privatization of Greece's electricity company.
Second, in an effort to prevent his party from spiraling out of control, Tsipras employed the so called Papandreou strategy. Named after former Greek premier Andreas Papandreou, the crux of the strategy is the maintenance of cohesion by directing attention to traditional enemies of the society. Papandreou managed to do this in the 1980s over "NATO and American influence" in Greece, while Tsipras is doing the same with German Nazi war crimes and reparations. However, unlike Papadreou, Tsipras did not manage to maintain control over his far-left rebels while in opposition.
The conclusion, then, is this: Given the activism of Syriza's far-left rebels and existing divisions between Greece and its creditors over the definition of the reforms, the likelihood of a referendum is rising. Nevertheless, the scenario hinges on the assumption of German intransigence. The latter may even take the form of a Cyprus Scenario with the ECB cutting emergency liquidity assistance (ELA) to Greece. However, given the current situation in the country, such a move would immediately trigger a referendum not on specific policies but on Euro membership - something that the Greek government spokesman confirmed by himself. The latter is not something the Germans want, and it is highly unlikely that they would take it so far, despite what Mr. Schaeuble says. Therefore, the most likely option would be a yet unspecified compromise on the reforms on the April 20 meeting between Greece and its creditors.