Despite historic vote, Greece may find paths to deal elusive

Buoyed by a Greek referendum victory on Sunday that was hailed by its supporters as a rejection of several years of European austerity loans, Greek Prime Minister Alex Tsipras on Monday began the urgent, difficult task of negotiating with skeptical European lenders to forestall an increasingly likely exit from the eurozone currency union. But while European finance ministers are slated to meet at a summit on Tuesday to hear new Greek proposals, it remains unclear whether Sunday’s historic vote will have significantly altered the calculus of European lenders.

Tsipras and members of his leftist Syriza governing coalition maintained before and after the referendum that a “no” vote against a previous European loan offer to extend a now expired bailout would strengthen Greece’s bargaining position as it seeks to reach a new loan package for desperately needed cash in exchange for reforms.

But how the referendum vote might translate into a third bailout on terms seen as more favorable to Greece was met with a cold-shouldered shrug from much of Europe.

“[The] ‘no’ vote is making things more complicated as the gap between Greece and the rest of the eurozone is widening,” said Valdis Dombrovskis, the vice president of the European Commission, said on Monday.

“The door is open for discussion,” said French Prime Minister François Hollande, standing alongside German Chancellor Angela Merkel in Paris after the two met to discuss next steps after the Greek vote. "It's now up to the government of Alexis Tsipras to offer serious, credible proposals so that this will can be turned into a program which gives a long-term perspective, because Greece needs a long-term perspective in the euro zone with stable rules, as the euro zone itself does."

The Syriza government is adamant that it wants to stay in the eurozone and avoid the “Grexit,” but it is hard to see how that will happen absent a deal on terms that have eluded Athens and European negotiators for the last five months.

Given that the second major European bailout of Greece expired last week as Athens missed a major payment to the International Monetary Fund (IMF) — one of the three institutions involved in bailout process — the only mechanism officially keeping the country in the currency union is the emergency lending to Greek banks by the European Central Bank (ECB).

On Monday, the ECB decided to continue the emergency assistance it has been providing since June 26, but that funding is unlikely to last past July 20, when a major debt payment of 3.5 billion euros comes due. And in a sign that Greece’s financial system remains on the verge of collapse, the government announced that Greek banks, which have been closed for more than a week to prevent a flood of withdrawals, would remain closed at least until Thursday.

Nonetheless, Tsipras worked on Monday to leverage the referendum vote toward achieving a more favorable deal.

In a move widely scene as a conciliatory gesture to Greece's European lenders, Tsipras secured the resignation of Yanis Varoufakis, the outspoken Greek finance minister who had clashed often with his European counterparts and appointed in his place Euclid Tsakalatos, who had helped lead debt negotiations.

Tsipras then met with leaders from six of the seven leading parties in Greece — the far-right Golden Dawn party was not invited — to further signal a solidified Greek negotiating front in Brussels.

The result of those talks was a statement, signed by all attendees except Greece's Communist Party, that called for the immediate resumption of negotiations with European lenders on new financing in exchange for “credible reforms” that would mean a “fair distribution of burdens and the promotion of growth with the least possible recessionary impact."

Tellingly, it also called for “a commitment to the start of an essential discussion as regards tackling the problem of the sustainability of Greek public debt.”

One of the major criticisms by the Syriza government and many Greeks of past bailouts has been the unwillingness of European lenders to make room for debt write-offs or forgiveness before Athens has fully committed to deep structural reforms. But many in Greece, including prominent economists, blame those deep reforms, which included tax hikes and surplus budget requirement, for preventing needed economic growth. At 26 percent, the Greek unemployment rate is the highest in Europe.

While criticizing the Tsipras government for its purported failures to stick to structural reforms, the IMF gave credence to Syriza's argument on wanting debt relief in any new bailout, saying in a report last week that Greece needed at least 55 billion euros and significant debt relief or restructuring to be put on a long-term sustainable footing.

As of yet, however, there are few signs that European lenders are willing to commit to those kinds of debt discussions in a new bailout.

"If things stay the way they are, then we're at an impasse," said Dutch Prime Minister Mark Rutte in a speech to his country's parliament on Monday. "There is no other choice, they must be ready to accept deep reforms."

Rutte added that if Greece feels it can use Sunday's vote in hopes of trying to secure a better deal beyond what was previously on offer, "then I think it is over.” 

“It [the referendum vote] is a triumph for Alexis Tsipras at home, but unless he can demonstrate how he can pull off a strategy of gaining debt relief before reforms, it could quickly become a Pyrrhic victory for him abroad,” said Josef Janning, a European analyst with the European Council on Foreign Relations on Monday.

There was already some indication of such a reading of the situation on Monday from Germany, the leading European lender and widely regarded as the most hawkish in the negotiations.

“The talk in Berlin … is not about compromise, but about how to organize post-Grexit humanitarian relief,” wrote European analyst Wolfgang Munchau in The Financial Times. “The idea that Greece would remain in the euro is considered somewhat quaint.”