Greece’s resounding OXI shakes Europe to the core

  • July 6, 2015

Capitalism & Crisis

The outcome of Sunday’s historic referendum marks a historic victory for people power — but with euro exit looming, Greece’s future remains wide open.

They tried everything. They shut down the banks. They imposed capital controls. They faked the polls. They spread rumors about impending deposit seizures. They even threatened to force Greece out of the Eurozone and to pursue outright regime change. Over the past 10 days, the political, financial and media establishment — both within Greece and in Europe — went full-on apocalyptic.

But the Greeks resisted. Refusing to be terrorized into submission or treated like children who cannot tell right from wrong, they stood firm and held their ground, with over 61% of voters rejecting the creditors’ ultimatum of June 28. The resounding OXI has shaken Europe to the core and will reverberate across the country and the continent for years, if not decades, to come.

On Sunday night, the atmosphere on the streets of Athens was electric. In one fell swoop, the referendum dramatically changed the balance of power — not only strengthening Tsipras’ hand but effectively obliterating the legacy of the so-called Metapolitefsi, the period following the fall of the military junta in 1974. In a highly symbolic move marking the end of a political era, the despised former Prime Minister Antonis Samaras finally resigned from his post as leader of New Democracy, the main right-wing opposition party.

The spectacular assertion of people power will strengthen the popular movement and solidify Syriza’s political hegemony domestically. The opposition has been all but obliterated. After the results of the referendum came in, Tsipras waited for Samaras to resign and then summoned the leaders of the three main opposition parties to his office, where he made them sign a pledge of national unity backing his negotiating strategy to obtain a new agreement with the creditors — one that that crucially includes debt relief.

In doing so, the Prime Minister skilfully foreclosed the option of EU-sponsored regime change, which had been seriously raised by several leading officials — including European Parliament President Martin Schulz — as a possible solution to the stalemate between Greece and its creditors. Moreover, Tsipras basically transformed himself overnight from a leftist politician into a national-popular leader, commanding the support of all the main opposition parties (save the Communists and the Nazis) and a fresh democratic mandate.

As a positive side effect, the referendum may help marginalize some of the more careerist and concessionary voices inside Syriza, especially those around Deputy Prime Minister Dragasakis, who has long been pushing for a deal at any cost. The moderates will find themselves weakened following the huge OXI victory and the renewed outpouring of popular opposition to austerity in the streets.

Still, Greece now faces an incredibly uncertain future. The next days and weeks are going to be crucial. Two parallel processes are currently conspiring to force the country to its knees — and both of these processes are almost entirely outside of the government’s control.

First, official reserves are now seriously running on empty, possibly forcing the government to start issuing IOUs (effectively a parallel currency) to pay pensions and wages later this month. The definitive cut-off date will be July 20, when Greece is bound to miss a major payment to the ECB if it does not immediately receive a further injection of credit from the Europeans. Unlike last week’s default on the IMF, a default on the ECB would have far-reaching consequences, likely forcing Greece out of the euro in a matter of days.

The second and most acute factor undermining Greece’s position is the ongoing collapse of the domestic banking system. Following a 10-day run on ATMs and the ECB’s cynical decision to put a cap on its emergency liquidity assistance, Greek banks are now on the verge of implosion. If the ECB maintains its current position, the government will soon find itself forced to step in and pump fresh liquidity into the financial system, requiring the minting of a new currency or, more controversially, the unauthorized creation of “Greek” euros.

All of this puts Tsipras in an incredibly complicated position. In the next days, he will have to somehow reconcile two fundamentally contradictory forces bearing down on him. On the one hand, the creditors’ ruthless strategy of financial asphyxiation is forcing him to seek an immediate deal to stave off economic collapse, undoubtedly requiring tough new austerity measures. On the other, Tsipras’ call for the people to vote against austerity unleashed social forces that he did not expect and may not be able to control.

In the end, something will have to give: either the creditors back down and concede major concessions (a deal with debt relief and with much less austerity) or popular expectations will have to be dashed to keep Greece inside the euro. If the creditors refuse to give in, the only alternative for the Greek government would be to start printing a parallel currency and gradually phase out the euro.

The surprise resignation of Yanis Varoufakis on Monday morning expressed this intractable dilemma in the clearest possible terms. To get a deal despite the resounding NO of the referendum, Tsipras was basically forced to sacrifice one of his closest confidantes and the single most popular member of his cabinet in order to placate foreign lenders and the moderates inside his party.

Still, Varoufakis’ resignation should not be considered a defeat per se. With Euclid Tsakalotos taking over the post, the creditors managed to oust an outspoken Keynesian for a soft-spoken Marxist. As a leading figure inside the so-called Group of 53 — made up of prominent party members on the left-side of Syriza’s presidential faction — Tsakalotos has been at the forefront of an internal mini-rebellion clamoring for a much tougher negotiating stance. Also, unlike Varoufakis, Tsakalotos does not categorically rule out a Greek euro exit.

All of this means that, while enormous challenges lie ahead in the days and weeks to come, the future is suddenly wide open. Greece’s defiant OXI has put people power back at the heart of European politics, challenging the very logic of neoliberal governmentality in Brussels, Frankfurt and Berlin. The mask is finally falling and the European project is forced, at last, to reveal its true colors: can the irreversible union still abide by the democratic choices of its people, or should whole countries be sacrificed to guarantee its fiscal integrity?

The leading financial commentator Wolfgang Münchau believes that Germany has no interest in a deal and Grexit is now the “default position.” We may find out whether he is right today. By July 20, we will know for sure.

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