Greece debt crisis: What does a 'yes' or 'no' vote in the referendum really mean?

Referendums are supposed to provide answers. Sunday’s in Greece offers mainly confusion. Greeks will vote on a cash-for-reforms offer from the country’s creditors that is no longer on the table. Creditors say it will be a de facto vote on membership of the euro. Greek ministers insist that a ‘No’ vote will result in a new round of bailout negotiations. Who, if anyone, can be believed?

…Government

Alexis Tsipras says he would “respect” the decision if Greeks ignore his calls and vote to accept the austerity demands of the country’s creditors. But his finance minister, Yanis Varoufakis, has already pledged to resign. And it is almost impossible to see how Mr Tsipras himself could survive as prime minister after a rebuttal of his advice to vote no. And in any case the creditors have made it plain they would not deal with him.

A yes vote would probably result in fresh national elections. In the best case scenario a new government would be rapidly formed and restart negotiations with the creditors within weeks. Yet that is by no means certain Syriza would do badly in new elections held in the wake of a yes vote.

The party might even surge in popularity as the Scottish National Party did after the loss of last year’s Scotland independence plebiscite. A new coalition in Athens could be impossible without some form of Syriza involvement. Given the oceans of bad blood between Syriza and the creditors that could mean stalemate.

…ordinary Greeks

Any one in Greece hoping banks will re-open their doors and allow Greeks to withdraw their savings at will on Monday in the wake of a Yes vote could well be disappointed.

The country’s lenders are reportedly down to their last €500m of cash. They simply could not risk a rush to withdraw funds from a frightened public if they opened up straight away. Capital controls would probably need to remain in place until new national elections had been held and produced a stable coalition, allowing the banks to stabilise. That will mean an on-going financial squeeze on ordinary Greeks.

…creditors

While they would breathe a sigh of relief and laud the good sense of the Greek populace the eurozone’s leaders would still face a massive headache. They would need to design a new cash-for-reforms deal with Greece because the previous one has expired. And the new deal would need to promise more money.

The International Monetary Fund estimated last week that the funding requirement will be €50bn over the next three years. That figure will be even bigger now thanks to the economic squeeze of the past six days. Creditors will need to get such a package through their national parliaments, which will certainly not be straightforward given the damage to relations caused by the staging of the referendum.

…Government

While Syriza would survive Mr Tsipras and his fellow ministers would still need to take immediate action to stabilise the country. If the prime minister is right and the eurozone responds to a no vote by offering a fresh round of bailout talks he will still have try to hold together a country close to social breakdown.

However, if Mr Tsipras is wrong and the creditors cut off Greece’s banking system that is when the horror show really begins. He will need to implement emergency measures to pay public sector workers and recapitalise the banks. This would probably mean issuing state IOUs as a form of parallel currency, while also commissioning the printing of drachma notes. Under these circumstances Mr Tsipras would need to explain to an angry and frightened Greek population why he got it wrong when he said no would lead to more talks and was compatible with Greece remaining as a full member of the euro. If his explanation does not convince, the government could fall. Martial law is not impossible.

…ordinary Greeks

Mr Tsipras claims the banks will open on Monday if the people vote no but it is virtually certain their savings would remain locked up for some considerable time. If creditors turn of the funding taps to the banks and the Government is forced to recapitalise them with IOUs Greek people would find the effective value of their savings instantly devalued at a stroke.

Companies that have borrowed from abroad in euros would have no choice but to default, resulting in a cascade of failures and yet another surge of unemployment. The economy would free fall. However over time – it is hard to say how long it is possible that the Greek tourism industry might get a boost from a return to the drachma and that other exports would pick up too. But there would certainly be a period of severe pain. It could even end with Greece departing the European Union itself and Greeks prevented from travel freely across the Continent.

…creditors

Having been spurned in a popular vote they would face one fateful choice above all others: do they cut off emergency funding for the Greek banking system and precipitate a full-blown financial meltdown on their door step? If they do they would probably have to send emergency aid in order to avert a humanitarian disaster as imports dwindle and vital supplies of food and medicine dry up.

Creditors would also face a huge problem over Greece’s place in the European Union. Athens would be a profoundly resentful and disruptive presence in European Council meetings – yet there currently exists no mechanism for ejecting Greece from the EU.