Daily Times

Greece’s referendum on the cash-for-reform proposals offered by the European Union (EU), European Central Bank (ECB) and the IMF (the ‘troika’) has resulted in a rejection of the proposals, with about 61.3 percent of Greeks voting against them. The “no” vote does not come as a surprise because of the anti-EU sentiment caused by the severity of the austerity measures that accompanied Greece’s financial bailout. The austerity programme has further damaged Greece’s economy and the welfare of the people, as public services and institutions are struggling to survive and the unemployment rate is now at 26 percent. Now that the troika’s proposals have been rejected, there will be further negotiations at the EU summit this week. Analysts such as Mohamed El-Erian, who is the chairman of President Obama’s Global Development Council, are speculating that the exit of Greece from the monetary union is a probable consequence of the result of the referendum. It remains unclear what the results of the summit will be but the exit of Greece from the EU (or “Grexit”) and its return to its original currency, the drachma, will prove to be a financial setback for the region as a whole and will undermine the entire endeavour of a unified Europe. Greece’s economic situation has been deteriorating recently, as banks remain closed and public hospitals and other institutions are struggling to keep their doors open. Greece’s precarious current financial situation seems less likely to improve as the tourist industry and foreign investment in the country are falling. Consequently, the desperation of the people is putting pressure on the Syriza government to negotiate a reasonable and sustainable deal with the EU, ECB and IMF.

However, the Eurozone, Germany in particular, has been resisting any concessions to Greece on the terms of the bailout. There is also speculation that some of the smaller economies of Europe, such as Portugal, Spain, Ireland, Cyprus and others, many of which have rising left-wing movements, may oppose any proposed concessions to Greece because the same were not offered to them, or that they may want similar concessions as well. Overall, the EU needs to be more democratic and not allow the rich and powerful countries to bulldoze the interests of the relatively underdeveloped ones and their people. Although it remains to be seen whether Greece’s creditors will accede to debt forgiveness or even agree to easier terms for the loans, this financial crisis affects the EU as a whole and not just Greece. The euro has recently fallen in comparison to the US dollar and the Chinese yen and could plummet even more if Greece continues to default on its loans and its economy plunges further. The threats of the breaking up of the union and the euro going into freefall does put some pressure on the troika to make some concessions. Concessions on the terms of the bailout, an increase in the emergency liquidity funds to the banks (Greece has asked the ECB to extend this funding for 10 days, until a new deal is negotiated), and a new strategy that enables Greece’s economy and people to flourish so that the debts can be repaid are the only solutions to this crisis. Whether a deal is negotiated or not hinges upon whether the ECB will bailout the Greek banks, which have all but shut down. In any case, a compromise will have to be reached to prevent a Grexit. The fact that the Greek Prime Minister has got Finance Minister Yanis Varoufakis to resign, whose statements had infuriated his Eurozone colleagues, shows that he is willing to compromise. However, the Syriza government will not back down from its opposition to the cash-for-reform proposals now that it has the mandate of the people. The EU as well has not backed down from the austerity programme as yet. It does seem that both sides are leaning towards compromise because a Grexit is not in anyone’s interest. However, any new deal should favour the people and boost the Greek economy from the grassroots level to ensure sustainable prosperity. *