July 02, 2015

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A fine mess

The first poll is out in Greece, showing a majority for the Yes vote, as the mood in the country seems to be shifting against Alexis Tsipras and his government. At the same, as Spiegel Online reports this morning, the mood within the CDU is shifting against Merkel. Even if the Greeks vote Yes, it will not be easy for the Germans to agree the deal. The best hope is to conclude a deal after the election. But that may well be too late. So now we have a real tragedy: just as the mood in Greece is shifting towards a Yes, the mood in Germany is shifting towards a No. In the meantime, the German position, reconfirmed also by the eurogroup, is to do nothing until the referendum on Sunday.

The mood in Greece seems to be shifting towards a Yes. A poll, published in Euro2day and conducted by BNP Paribas, suggests that the 'Yes' vote will win with 43.5% against the 'No' vote with 39.9% with a statistical error of 3.1% - in other words the results is statistically inconclusive. One should not read too much into these polls but it supports what we heard elsewhere, that there was a visible mood shift yesterday. One of the reasons for this might be that the effects of capital controls have been underestimated by the government. The Greek media were full of pictures with pensioners lining up in front of closed banks, waiting for their pensions to be paid out. These surely did not help.

In a televised address to the nation Alexis Tsipras accused the creditors of blackmailing by forcing the country to shut down its banks because the Greek government decided on a referendum. The FT blog writes that this came only hours after Tsipras sent a letter to the creditors on Tuesday night, in which he insists on the island VAT discount, demands more concessions for pensioners in terms of delaying some of the measures, and accepts higher military spending cuts, though only in 2017. Not really an acceptance of the creditors' terms as reported in the press. Jeroen Dijsselbloem wrote to Tsipras confirming that there will be no more talks before Sunday's referendum.

Can the referendum still be cancelled by the constitutional court on Friday, when it hears a case brought by two citizens? The New Democracy MP Christoph Dimas lists in Kathimerini eight constitutional, legal and formal impediments. Article 44 of the Greek constitution states that a referendum shall be on important social matters, not on fiscal ones. If only it was clear what the question actually is. The one posed in the referendum is irrelevant, as citizens are invited to decide on something that is no longer on the table and the government has formally submitted two additional proposals in the meantime. The question is neither clear nor understandable. It is based on two texts, with technical terms, and one difference in translation between the English and Greek version, as pointed out by Bloomberg. The ballot paper puts the 'No' option on top of the 'Yes' option, against the convention. The relevant legal act states that the court representatives and election commission shall be the same as the one for the national elections. This does not account for the objective of the referendum nor practical changes that happened to the members of those commissions since the national elections. Eight days might be too short to allow for a democratic process ahead of the referendum. We will know more tonight. 

The government, meanwhile, campaigns for a No vote. Yanis Varoufakis gives us his 6 bullet points on why Syriza recommends rejecting the proposal, a sort of "who is with us and who is against us" type of justification, basically saying that it can only increase the chances of debt restructuring. Here are his points: Creditors refused to reduce Greek debt. Debt restructuring has been acknowledged by the IMF, the US government and "independent economists." The eurogroup conceded it in its November 2012 declaration. Since the referendum has been evoked, EU officials signal that the EU is ready to discuss debt restructuring. Worries about Grexit and deposit safety are largely unfounded. The creditors are to blame for the breakdown and they are using blackmail based on bank closure. The government also announced the rehiring 230 Athens metro workers, a campaign trick says the opposition, to get Greeks to vote 'No' in the referendum, Kathimerini reports.

Under the radar screen was the news that the Greek government not only defaulted on the IMF but also on its own central bank, which means on the ESCB. This is important because the case could be considered debt monetisation. The ECB might let it go if a eurozone government defaults on an international institution, but its central bank is a totally different matter. Die Welt reports that the Greek government defaulted on a €470m credit, dating back to 1993. An outright default was avoided as the central bank and the government agreed to settle this with seignorage and other government claims, which gives it more time to pay back the credit. But a voluntary repayment deferral could be considered debt monetisation. Whether this carries any weight in the ECB council is another matter. The article finds that decisions are no longer following the rule book but are becoming increasingly political.

Our other stories

Today we also take a look at different scenarios and constraints regarding Greek banks; whether this is the end of Tsipras; comparing opinions on Greek debt sustainability; and how politicians could have got this all wrong.

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