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UPDATED: July 9, 2015
No Is Not the Answer
The people of Greece may have scored a moral victory with the bailout referendum but their elation may sadly prove short-lived
By Yu Lintao

Supporters of the No vote celebrate after the result of the referendum was released on the street in Athens on July 5 (XINHUA)

In what some deemed like an indulgent—even petulant—move, the people of Greece gave a resounding "no" to their EU creditors' demands on austerity in the bailout referendum, but their troubles will most definitely not end there. For the ordinary people of Greece, whether it owes to EU austerity policies or to the current capital control measure of the Greek authorities, their lives in recent years have gotten a lot harder.

The referendum has placed both Greece and European Union (EU) at an embarrassing crossroads. The future development of the Greek debt crisis concerns not only the well-being of the Greeks but also the process of EU integration and even the pockets of global investors. However, with both sides standing firm, the way out of the current crisis appears to be nowhere in sight.


In the historic referendum, an overwhelming 61.3 percent of Greek voters cast their ballots against the EU-proposed debt deal which required more austerity, while the rest voted in favor.

The outcome appears to have surpassed even the worst fears of leaders of the major EU creditors. Ahead of the voting, many parties in the international community urged Greece to make what they saw as the right choice. Chancellor Angela Merkel of Germany--Greece's largest lender--displayed optimism toward the referendum.

Li Gang, a researcher fellow with the Chinese Academy of Social Sciences (CASS), said the outcome of the Greek vote showed that emotion has defeated rationality.

In facing of the ever-worsening economic situation and a bleak overall outlook, the Greeks have laid the blame for their present situation at the foot of the EU austerity package. On the face of it, the austerity package has brought with it mostly negative economic and social consequences to Greece. The Greek people have been required to tighten their collective belt in the five years that have passed since the March 2010 outbreak of the debt crisis. Statistics from World Bank shows that, since 2010, Greece's GDP has declined more than 20 percent. The current unemployment rate has reached 26.6 percent with over half of the country's young people remaining jobless. The average salary has decreased 40 percent and old-age pensions have fallen by half. Greece's lower socioeconomic echelons have been hit perhaps the hardest.

However, the act of saying no to international creditors can be construed as a form of abreaction on the Greek public's behalf, said Li.

Such a move—led more by the desire to blow off steam rather than by sound economic thinking—is not conducive to the resolution of the problem. Zhang Jian, Director of the Institute of European Studies under the China Institutes of Contemporary International Relations (CICIR), said the referendum has backed the negotiation between Greece and its creditors into a corner.

"The Greek Prime Minister Alexis Tsipras had already voiced his party's opposition to the EU bailout plan before the voting. The outcome of the referendum leaves the Greek Government far less room for maneuver. But the negotiations will, nonetheless, continue," Zhang said to Beijing Review.

Though Tsipras is backed by the will of the people in his determination to make no further concessions, this doesn't mean the EU will become any less immovable.

After the outcome of the referendum was announced, the European Commission said it "takes note of and respects" the results of the vote. Meanwhile, the commission's president Jean-Claude Juncker expressed that he would also be consulting with leaders of the other 18 eurozone members.

Zhang said that it also looks unlikely that the EU creditors will budge as they too have to take into consideration the attitudes of their respective domestic taxpayers.

"Other EU debtor nations which have already accepted the EU austerity package such as Spain and Ireland, have taken an even harder line over the Greek debt crisis," said Zhang.

Some observers in Greece are none too that optimistic as regards the after effects of the referendum. In interviews with China's Xinhua News Agency, Costas Melas, professor of economics at Panteion University of Athens, claimed the referendum will have no positive impact on the Greek economy. On the contrary, it imposes certain demands that he doubts Tsipras will be able to meet in the future. Nikos Vettas, professor of economics at the Athens University of Economics and Business said uncertainty prevails in the Mediterranean country. It may all boil down to how each side interprets the intentions of the other.

Mutually assured destruction

Beyond any doubt, the Greek debt crisis has dealt a huge blow to the EU integration process, particularly to the Eurozone, said Zhang of the CICIR. "It has exposed structural defects in the eurozone scheme. It has implemented unified monetary policy, but member states have held firm to their old fiscal habits regardless," added Zhang.

The establishment of the eurozone is an innovation of the international financial system. Though the GDP of Greece accounts for a paltry 2 percent of that of the entire eurozone, if it were to finally withdraw from the monetary union following the crisis, it would be tantamount to declaring the euro a failed experiment and would surely hinder further integration of the Europe.

What's more, it could also trigger a domino effect within the eurozone itself, with other countries becoming emboldened to default or threaten to leave the monetary union. Another point of concern is Greece's withdrawal would lead to the euro depreciation and rising value of the U.S. dollar. A weak euro will mean a declining EU status in the world economic and political order.

Zheng Dongchao, an associate researcher with Beijing-based China Center for Contemporary World Studies, said that the Greek crisis shows that in spite of being the most mature regional bloc in the world, the EU should not be overly hasty in its integration process, which needs to be carried out in a gradual fashion with due caution. A speeded-up integration process may only store up trouble for the future.

Fortunately both Greece and other EU members have anything but cavalier with regard to the possibility of Greece withdrawing from the eurozone.

Commentators have noted that Greece is obviously leery of outright eurozone exit. Without the advantages bestowed upon it by its membership of the monetary union, it would be hard to see the Greek economy holding out much longer. Following the vote, Tsipras reassured to the world that the "no" vote does not mean no to Europe and the euro.

Li of the CASS claimed that a "Grexit" from the eurozone would spell disaster for the Greek economy. Once it has withdrawn, the country will face the risk of liquidity squeeze with its economy left in tatters.

The current deadlock not only posits a headache for the respective leaders of either side, but also has serious implications for the global financial market. As the debt crisis unfolds, the world stock markets have become increasingly volatile.

Though the eurozone has in recent years shown signs of recovery, the Greek crisis is weakening the confidence of investors and consumers both, which may further impact EU's quantitative easing policies and the Juncker Plan which aims to boost investment in European countries.

Although the current crisis has not much direct influence on China, the possibility of a knock-on effect cannot be ignored. "A stable eurozone is much more favorable to China-Europe economic cooperation as China is a major creditor of the European bonds. The uncertainty of the future development of the Europe cast shadows on China's benefits," Zhang said to Beijing Review.

A Greece plunged into chaos is also not in the interests of China-Greece economic cooperation, Zhang added. Currently, China is one of the important foreign investors of Greece focusing on the fields of sea transportation, telecommunication and photovoltaic industries.

During Chinese Premier Li Keqiang's most recent European visit in late June, Li called on Greece to stay in the eurozone and said China is willing to play a constructive role in efforts toward that end.

Li stressed that the China-Greece relationship is a crucial element of China-EU ties. Indeed, China has made its own efforts to help Greece handle its sovereign debt crisis and responded to some concerns and requests from the Greek side with concrete actions.

Zheng said that the verbal jostling and negotiations between Greece and its EU creditors will continue into the foreseeable future. It is impossible for Greece to pay the debt in full based on its current economic strength, but under the pressure of the EU, it is also impossible for Athens to maintain its tough stance any longer.

Zhang has a similar view, noting that the most likely eventuality is that both sides will meet each other half way. Greece will most likely accept EU aid in return for limited reform.

Copyedited by Eric Daly

Comments to yulintao@bjreview.com

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