Bankruptcy or referendum: which one is going to be first?

He who laughs last, laughs longest. Photo taken from last week's EU Summit on migratory pressure in the Mediterranean (TVNewsroom European Council, 23/04/2015)

He who laughs last, laughs longest. Photo taken from last week’s EU Summit on migratory pressure in the Mediterranean (TVNewsroom European Council, 23/04/2015)

The move by Alexis Tsipras, the Greek Prime Minister, to reshuffle its negotiating team will certainly ease the tense in Brussels but is not going to bring the desired deal. The main thorns for unlocking the next tranche are the “red lines” of the Greek government and its anti-austerity policy.

Greece is struggling to pay wages and pensions, let alone its obligations against the three institutions (EU-ECB-IMF). Recently, in a desperate attempt to gather money, the Greek government asked the municipalities and universities to put all their excess funds to the country’s disposal. It is more than clear that Greece is running out of money and time with the external repayments to be the main issue.

The other EU member states together with the technical representatives, who are in change of negotiating and evaluating the efforts and reforms of the Greek authorities, are not convinced that Greece is going or willing to follow the guidelines of the February 20 agreement and continue asking for more reforms. Thus, the EU is facing great difficulties to find an imminent common solution with Greece whose future is very ominous with a possible bankruptcy not to be excluded in the near future.

EU stance does not rely on “names”

Alexis Tsipras decided to pushback Yanis Varoufakis in the negotiations with the EU institutions. This decision came after the completion of the Eurogroup that took place in Riga on April 24 between the Eurozone Finance Ministers and triggered shocks in the left-wing party Syriza. The Greek Finance Minister, one of the most valuable assets of the Greek government, couldn’t reach a deal with his EU counterparts regarding structural reforms which will lead to a short liquidity breath that Greece so anguishly seeks. Consequently, Eucleides Tsakalotos, the Chief Economics Spokeman of the Greek government is going to take Mr Varoufakis’s place over the debt and reforms negotiations.

The need for a less intense communication with Europe is targeted by this replacement. Furthermore, the fact that Mr Tsakalotos is born in Rotterdam and he has a milder personality compared to Mr Varoufakis are the points that the Greek government focuses on in order to find as many allies as possible. However, this alteration is going to bring minor progress to the negotiations. The people who represent a country do matter but what is most important in this case is the country’s policy. And this is the main reason why the Greek government cannot agree with the EU institutions which are keenly insisting on their demanding “reforms” stance.

Greece is running out of money

The Greek government showed once more that has no reserves left to pay for its debts. More in detail, the recent legislative act that was brought in the Greek parliament urgently is forcing the local authorities to deliver all the excess cash that they have in their disposal. It is estimated by the governmental officials that if such an action completes successfully it will bring 2-2.5 billion euros to be used for the country’s needs.

Even if that happens, there are also external apart from internal debts that Greece has to repay in the next two weeks. In particular, Greece has to pay 200 million euros and 750 million euros of debt interests to the International Monetary Fund (IMF) by May 1 and May 12, respectively.

A referendum is most likely to be held soon

Alexis Tsipras was interviewed in TV two days ago and stated that his party’s first priority is to pay salaries and pensions. What is more, he mentioned that in the event of a dead end in talks with the institutions, the people will decide for the country’s fate via a referendum excluding thus the choice of elections. The Greek Prime Minister specifically stated that: “If I find myself in the difficult position of an agreement which falls outside our mandate, then the Greek people will have to give the answer”.

Recent surveys have shown that the majority of the Greek citizens are in favor of staying within the Eurozone. The latter means that if Syriza decides to hold a referendum and the question will be: “Will we implement all the measures our creditors impose in order to stay in the Eurozone?; then the answer will most probable be affirmative. By calling a referendum, the Greek government wants to avoid doing, without people’s will, reforms that has pre-announced as “red lines” (such as pension cuts and reforms in the labor sector) before the elections of the January 25.

Greece’s future seems inauspicious

Will Greece manage to find the money and not get bankrupt? In an ideal for Greece scenario, this will mean a maximum two-month delay. But what will happen next? The bigger picture for Greece and the rest EU countries is to agree on the creation of a permanent plan in June when the extension of the current programme ends.

All in all, as things stand, even the most optimistic person would not bet a euro of his money on a positive outcome.


Follow Chris on Twitter @CAnyfantis

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