On June 26, Greek Prime Minister Alexis Tsipras announced an emergency referendum during an special televised announcement. On July 5 the Greek people will be able to vote on whether to accept the harsh fiscal demands of its troika of monitors — the European Commission, the European Central Bank and the International Monetary Fund (IMF). The result may determine whether Greece stays in the eurozone.
This is Tsipras’ masterstroke — a move that will either force a compromise or expose the limits of what can be achieved in the eurozone by an anti-austerity government. But it might also prove his undoing, as the timing and the question itself are evidently contentious.
In his speech, Tsipras outlined what the Greek people should expect from the deal offered to them, then called on them to decide if they want to accept the deal the country’s creditors are offering: a hike in value-added tax (VAT) rates for remote areas in Greece, new austerity measures for the already collapsing economy that amount to $13 billion in tax hikes and pensions cuts and a strategy that exemplifies the string of failed bailout programs imposed by the country’s lenders in years past.
This vote has been in the cards for some time. Tsipras did almost the same thing two weeks ago, when he asked opposition ministers in parliament if they would support what the lenders were offering. The answer, of course, was no.
Since then, though, his hand has been forced by relentless backtracking of the IMF in the negotiation process and the heavy pressure his party is under. The Greek economy has been squeezed hard since January, and more than 40 billion euros have left the banking system, in what has been labeled a bank run in installments by the international media. After the announcement, massive lines formed outside banks, and Greeks withdrew an as yet unknown amount of money, prompting the government to impose capital controls with withdrawal limits of 60 euros per day and a shutdown of all Greek banks until at least after the referendum.
This is where Tsipras’ troubles begin. When Syriza took power in January, the troika negotiating with Greece adopted a schizophrenic attitude regarding the discussions. It pushed Syriza until the party backed down on raising the retirement age, hiking VAT rates for most goods and accepting privatizations of key assets such as the Piraeus harbor. It then indicated there would be a deal in the second week of June but came back with even tougher measures, proposing a VAT increase in Greek islands and immediate cuts in pensions while failing to offer Greece much-sought debt relief.
The latest two drafts of its bailout proposals seen in the past week were harsher than the terms already in place, demanding the gutting of the pension system and tax hikes that would hit the self-employed hard: 100 percent tax advances (a tax on projected rather than actual earnings, paid in full in advance) and a 26 percent tax for businesses big and small. The country’s creditors will probably offer Syriza another deal along the same lines. But the tactic seems to have run its course or at least shown this is as much as the troika is willing to give. What happens now?
On July 5, Greeks will vote. Many analysts, such as Nick Malkoutzis of MacroPolis, a trusted analysis and commentary website, assume that the referendum will essentially determine whether Greece will stay in the eurozone and that if it does and people accept the latest budget deal, Syriza should resign.
Initially, it seemed that both these assumptions were wrong. What Syriza was essentially seeking here was a democratic mandate to act. The party ran on a platform that promised both an end to austerity and Greece’s continuing membership in the eurozone.
Now the purpose of the referendum isn’t so clear.
Syriza, which in retrospect started from a position that seems far too optimistic, has found that it can’t make good on either of its key promises. If it signs a deal in Brussels that strays too far from its red lines — mainly pension cuts and mass layoffs — it risks letting the party fall apart. It is very likely that not all its legislators would vote for it.
If they don’t and things go down their current path, Syriza could take Greece out of the euro, which would open the party to attacks from all sides.
To their credit, what Syriza and Tsipras are looking for here is guidance from the Greek people, who are essentially being asked to choose between a rock and a hard place.
“The question will be, Will you sign up to the economically illiterate, forever indebted plan offered by the IMF/EU or give us a democratic mandate to resist it, even if they crash our banks?” journalist Paul Mason said. “Whatever you make of this logic sitting outside Greece, it is primed to deliver the “no” camp a victory.”
But it is conceivable that the move has spelled out Syriza’s endgame. The country’s creditors, especially Germany, might opt to make the referendum redundant. And there is only one way to do this: With the banking system now dry of cash and Greek society bitterly divided, a deal that’s only marginally better could be put on the table, with better chances of being passed.
Tsipras will thus either opt for a clean break and stake his future on the outcome of the referendum or cave in to Brussels’ demands. If the referendum turns up a “no” vote, Syriza will likely lead Greece out of the euro. In case of a “yes” vote or if Tsipras opts to sign a new, yet to be determined deal, his government will have to resign. He could well win the next elections on the basis of his humanitarian handling of austerity, but he would no longer be able to play David to Europe’s Goliath.
Now that the ball is back in Europe’s court, it is high time for the EU to show the world what it wants to be. Will it become a punishing entity that can’t tolerate even a moderately Keynesian left-wing government? Or will it embody the “end goal, the purpose of humanity,” as Costas Douzinas, the director of Birkbeck College and one of Syriza’s thinkers recently put it — meaning a return to principles of solidarity and democratic governance?
Syriza has little room to act; Europe doesn’t know what to do. If neither entity can make a decision, then we had best let democracy decide.