Why a Yes Vote for Austerity in Greece's Sunday Referendum Will Necessitate Concessions from the Troika

Today in the United States will be the last day of the work week for many people. A lot of those who do not get tomorrow off because of the 4th of July holiday on Saturday will take Friday off anyway. Since tomorrow I'm posting on Hippies vs. Punks, and either Saturday or Sunday (or possibly both) my plan is to take care of some old business and finish "The Colt 45 Chronicle" posts, I want to get my two cents in before Sunday's referendum in Greece on austerity.

Yesterday I think Tsipras erred when he went on television and said he was willing to accept with some tweaks the last offer on the table from the troika. German Chancellor Angela Merkel promptly replied that there would be no more negotiations until after the Sunday referendum.

Two things on this: 1) Tsipras likely got some bad feedback from U.S. Treasury officials that eurozone leaders were open to a compromise, and 2) Germany obviously feels that a Yes vote for austerity is the most likely outcome.

Tsipras' public acceptance of the last offer from the troika at the same time Syriza is rallying Greeks to vote No is extremely confusing to say the least. Why vote No when the prime minister is saying in substance he would, with some marginal modifications, accept such an agreement?

But this morning I think Varoufakis went some distance towards correcting the Tsipras blunder by saying if the vote on Sunday is a Yes he will resign as finance minister.

Nonetheless if I had to choose, much as it nauseates me to acknowledge it, I would have to say that a Yes vote at this point seems more likely.

Neil Irwin published a piece yesterday arguing that "Greece Wanted to Reframe Europe’s Austerity Debate. It Failed." This is by and large the same point that Yves Smith of Naked Capitalism has been making since Syriza came out on top in January's parliamentary elections, and it is one she reiterates in a post yesterday, "Tsipras Accepts Most Creditor Terms as Merkel Insists on Referendum."

I think the first round of media that Varoufakis did in the winter following Syriza's win he made some headway. He was very cogent and convincing about the impossibility of Greece paying off its lenders; that austerity actually shrinks the economy, necessitating further loans from the troika; that the primary surplus achieved by the preceding government led by New Democracy was a fiction based on the shrinking of overall economic activity.

But once Syriza sat down with the troika in Brussels this message gradually over the months became lost, disappearing entirely when Varoufakis agreed to a primary budget surplus. As scholar Costas Panayotakis said in an interview on Democracy Now! on Tuesday, Syriza can't even be considered a Keynesian party. What was the norm in the 20th century in the post-War II period is completely verboten in Europe today.

All this augurs ill for a No vote come Sunday. Popular votes are not normally platforms for displays of personal courage and heroism, particularly with all the tacking back and forth leadership has been engaged in.

So we need to consider what a Yes vote entails. Varoufakis says he will resign. Tsipras says he will not implement austerity. And even if Tsipras decides to eat those words he would face a sizable rebellion from his party in parliament. This means new elections must be held, which means the financial crisis in Greece worsens. As Smith points out in her post from yesterday,

Consider how this might play out. An op-ed in Reuters by Hugo Dixon titled, Tsipras looks like he is crumbling, describes what happens if the referendum delivers an anti-Syriza “yes” vote:

Still, it would be wrong to think that a “Yes” vote would lead to a quick or straightforward solution, because of the complexities of Greek politics.

One might think that opposition parties and SYRIZA could form a national salvation government. Something similar happened in 2011. But creditors would have little confidence that any government relying on SYRIZA would do what it promised. As a result, it would struggle to reach a new deal with its lenders and get the banks open.

Knowing all this, the Greek political parties might conclude that it would be best to clear the air by calling new elections. But there’s no guarantee that the opposition would win such a vote because it is fragmented. It has not yet managed to rally behind a single figure and a common program.

Even if the opposition won such an election, it would not be ready to start talks with its creditors until August. By then, the banks would have long run out of cash unless the ECB supplied more emergency liquidity, and the economy would be in a terrible state.

Benoit Coeure, the ECB executive director responsible for negotiations with Athens, said this week that if Greeks vote “Yes” in the referendum, he had “no doubt” euro zone authorities would find ways to meet commitments towards the country. The snag is that it may struggle to find a legal route to provide more liquidity until a new agreement is reached.

So even if voters cry “uncle,” it will take time to sort out a new coalition or worse, have an election, and in the meantime, conditions in Greece will become more desperate. Bank holidays are a form of strangulation. As Nathan Tankus wrote last month:

Two years ago in Cyprus, an emergency bank holiday was declared and capital controls installed. The bank holiday only lasted for twelve days yet supply chains started drying up instantly. An ex-Cyprus central bank governor told the Guardian:

Supplies of food are being exhausted and there are cases of raw materials like iron and timber being held up in customs because importers don’t have the cash to pay for them … No one expected, myself included, that the EU, ECB md IMF, would behave like this. Cyprus has been treated very badly … Where is the solidarity principle that is supposed to underline Europe?

Even 6 months later after the banks had reopened and capital controls were loosened, businesses were still having trouble getting basic supplies.

And remember, Cyprus was in vastly better shape than Greece is now.

The goal of the neoliberal austerian power brokers has always been to crush Syriza. The question for Merkel now becomes, assuming a Yes to austerity on Sunday, is it better to have a gelded Syriza remain in power and carry out austerity by acceding to Tsipras' tweaks on pensions or is it better to throw Syriza out of power and topple the government?

Merkel no doubt would opt for the former. It is better to capture your opponent than have him run away to fight another day. But it might be beyond Merkel's ability, post-Yes, to grant any concessions to Tsipras. One thing seems clear. Assuming a Yes vote, and absent concessions from the troika, there will be new elections.