Greece's referendum - "No" to what?

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Economist

Greek voters have rejected austerity. Whether they meant to or not, they may find out they have also rejected the euro

Updated 7am GMT, July 6th, to include the sudden resignation of Yanis Varoufakis, the finance minister

IT WAS more than Greece's "No" campaigners could have hoped for—and it may turn out to be more than they bargained for. Alexis Tsipras, the radical left-wing prime minister, snatched an unexpectedly easy win in Sunday’s hastily arranged referendum on whether the country should compromise with its creditors, the European Union and the International Monetary Fund, on a new bail-out deal. Going into the vote, opinion polls showed Mr Tsipras’s anti-austerity “No” camp just a shade ahead of “Yes” supporters, who included the main opposition parties. Yet supporters of Mr Tsipras’s fractious Syriza party rallied behind him: with more than 95% of the vote counted, "No" was ahead by 61.3% to 38.7%. The gap was so humiliatingly wide that Antonis Samaras, the former prime minister (unseated by Mr Tsipras in January) who had championed the "Yes" campaign, promptly resigned from the leadership of the centre-right New Democracy party.

Despite the jubilant crowds (pictured) celebrating in Syntagma Square outside parliament, it was a hollow victory for the 40-year-old Greek leader. A week ago, after he announced the referendum, Mr Tsipras had to impose a week-long bank holiday and capital controls to avert a potentially disastrous bank run. As voters trudged off to polling stations, many cash machines in central Athens had run out of money, even though depositors are only allowed to withdraw €60 ($66) a day. In a telephone call on Sunday night to Mario Draghi, the European Central Bank president, Yannis Stournaras, the Greek central bank governor, put in another plea for emergency liquidity assistance (ELA) to prop up the country’s four systemic banks. If the ECB withholds such funding for Greece at Monday’s teleconference of euro-zone central bank bosses, the weakest of the four banks could collapse within days, say Athens bankers. The threat of a “Grexit” from the euro, staved off in mid-2012 when the newly-elected Mr Samaras reversed his previous course and embraced fiscal and structural reforms, is not only back; for some international analysts, it is now the most likely scenario.

In a televised address to the nation Sunday night, an unusually subdued-looking Mr Tsipras said he has two priorities. The first is to re-open the banks as soon as possible. Yanis Varoufakis, the ever-optimistic finance minister, predicted they would be up and running again by Tuesday, whereas Mr Stournaras was more cautious. But then Mr Varoufakis resigned on Monday.

Mr Tsipras's second priority is to resume bail-out negotiations, this time putting on the table the contentious issue of restructuring Greece’s mountainous debt, equal to almost 180% of gross domestic product. Mr Varoufakis's insistent stance on the terms of debt relief had made him look like a stumbling block on the way to any agreement; his abrupt departure may indicate that Mr Tsipras wants to strike a deal quickly and surely.

Unlike Mr Tsipras, Greece’s creditors dread the prospect of locking horns again over increases in value-added tax, pension cuts and the other reforms that have been endlessly chewed over during the past four months of negotiations. Most of them are even less eager to consider debt relief. Last week, Mr Tsipras asked for a new two-year, €29.1 billon bail-out on less stringent terms. Winning the referendum had strengthened Greece’s hand, he claimed on Sunday. But after his anti-European blasts during the campaign, eurozone leaders, who will hold a special summit on Tuesday to discuss Greece, may prove unresponsive. On Sunday night, Jeroen Dijsselbloem, the head of the Eurogroup of finance ministers, called the Greek vote “regrettable.” In a letter to the membership of his Dutch Labour party earlier in the day, he said he hoped that "honest politicians" would step forward to tackle Greece's deep-rooted problems—a formulation that made clear the contempt in which Greece's current government is held by many EU officials, not to mention many of their countries' citizens.

The Greeks who gave the "No" side its win on Sunday did not seem to grasp how their vote would be perceived in the rest of Europe. Dancing and partying late into the night in public squares across the country, Syriza supporters spoke of a "victory of democracy" that would create a new Europe of solidarity. Meanwhile in Germany, Sigmar Gabriel, the leader of the centre-left Social Democratic party (coalition partner to the Christian Democrats of chancellor Angela Merkel), said that Mr Tsipras had "torn down the last bridges" between Greece and Europe and that further negotiations were "almost unthinkable". The majority of Germans have long favoured a Greek exit from the euro, according to polls. For most northern Europeans, the rejection of the bail-out terms signified a demand that Greece continue to set the conditions even as it is supported by other countries' taxpayers. Mr Tsipras may claim a democratic mandate to demand a new deal, but the democratic pressures on other EU leaders might make it impossible for them to give him one even if they were so inclined.

Some EU leaders are still intent on resuming negotiations. On Sunday Emmanuel Macron, France's finance minister, said it was the EU's responsibility to avoid a "Versailles treaty of the eurozone"—a reference to the peace treaty after the first world war that imposed punitive terms on Germany. On Monday François Hollande, France's president, is expected to press that message in a meeting with Mrs Merkel. But it may be too late to find a solution. Last month Greece defaulted on a €1.6 billion pile of loans to the IMF. On July 10th it must roll over €2 billion of short-term bonds held by Greek banks. Most critically, on July 20th Athens is due to repay €3.5 billion on a maturing bond issue to the ECB. If a new bail-out programme is not in place by then, another default seems inevitable. That would kick discussion of a Grexit into full gear. This time, it may be impossible to avert.