July 01, 2015
The first polls are out. The No Vote is in the lead with 46%, with Yes on 37%, and 17% undecided. There is a comparison to an earlier poll, which suggests that the Yes vote is gaining ground, but not enough. The older figures are 57-33, but we would caution readers to read too much into the comparison. It was always clear that the imposition of capital controls would impact voting behaviour. The question is whether this is big enough to pull the Yes vote ahead. A majority of Greeks still support the decision by Alexis Tsipras to call a referendum.
The question now is: what happens after the referendum? The most important news yesterday was not the predictable default, nor the end of the programme, but Angela Merkel's comment that Germany will not negotiate before the referendum on Sunday. Germany seems to be betting on a victory of the Yes vote. Merkel has completely lost whatever trust she had in Tsipras (see our note on this below), and clearly wants regime change. A Yes vote may trigger that - but don't be so sure.
A Yes vote would, presumably, lead to the resignation of Tsipras' government, and the possible replacement with a technical government - one that would have to govern with the Syriza majority in parliament. We see no reason to believe that Syriza might not win those elections, given the state of the opposition. So someone will have to explain to us what is gained by a Yes vote from the perspective of the creditors. You get four more weeks of financial destruction, followed by a very uncertain election outcome. If Greece votes No, we would presume that negotations for a third programme would start immediately, but with a danger that they might fail, since in our view there cannot be an ESM programme without austerity.
Could the referendum be called off at the last minute as comments by Yannis Dragasakis suggested? The answer is no. It would require some sort of deal before Sunday, a scenario which Merkel already rejected. To call off a referendum might also not be possible constitutionally. Whether Dragasakis was misquoted here or not, he is de facto the "pro-deal" leader inside the party. As party internal conflicts are likely to increase in intensity as the consequences of the referendum decision become more apparent, so his role will become more important. For some lenders and investors, Dragasakis seems to be the ideal Syriza candidate to replace Tsipras should there be a 'Yes' vote, according to To Vima.
For those who want to assess the likelihood of a deal if there were a political willingness to do so, Macropolis highlighted the main differences between the two proposals. On VAT, the differences amount to 0.07% of GDP, with the thorniest issue the 30% discount for the islands, a deal breaker for the coalition partner Anel. As for pensions, lenders insist Greece must implement the zero-deficit clause for supplementary pensions retroactively, and want to increase the health contribution in both main and supplementary pensions to 6%, while Greece rejects the first and suggests an increase only up to 5% for both health contributions. Institutions objected to the Greek proposal to increase employers' contributions for both main and supplementary pensions. They also don't accept the Greek plan to tax corporate profits and expect double the sum of what the Greek government suggested in defence spending cuts.
Yesterday's main event was the resumption of futile negotiations. Greece made a simple proposal for a two-year, €29bn, ESM debt-rollover programme, which would fund the country's debt repayments only, and to restructure the EFSF debts. The eurogroup rejected that offer at a telephone conference last night, and also rejected a renewed request for the second programme extension. They agreed to talk again today. Frankfurter Allgemeine makes the point that the ESM treaty requires conditionality. It also quotes Wolfgang Schauble as saying that the Bundestag would have to give the German government a formal mandate even to start negotiations.
The article also gave a useful insight into a spat between the European Commission and the eurogroup. Jean-Claude Juncker made a proposal to Athens according to which he held out the prospect of a fast ESM agreement if the Greek government were to endorse the Yes vote. There was apparently quite a bit of irritation within the eurogroup. Merkel's statement yesterday was also directed against Juncker and his diplomacy. She wants to deal with somebody else. And the referendum is the only window of opportunity for that to happen.
We note that there had been some vague discussions on debt relief in the troika's last and final offer. Die Zeit got hold of a working paper that was discussed last week, setting out a schedule for a maturity extension of the EFSF loan, but we are not sure what the status of this paper was. It was clearly not adopted, presumably because the view prevailed that there could be no discussion on debt relief within the confines of a second programme.
Today we take an in depth look forward at developments in Greece; we also have stories on what will be motivating the ECB’s decision on Greek banks; why QE is not having an impact on inflation; and how the debate in Germany narrows the room for a deal.