The Greek government has called for a referendum this coming Sunday, July 5th; an essential guide into the #Greferendum and the current state of affairs regarding #Grexit

As most of you probably know, Greece has entered since the early hours of last Sunday into a 7-days campaign time that will take the nation to polls next Sunday, July 5th regarding a question pertaining to Greece’s long lasting negotiations with its international lenders, i.e. the European Commission, the European Central Bank and the IMF, over Greece’s funding needs and the restructuring of the country’s enormous external public debt. Herewith, I am briefly presenting the most crucial points of all events that have taken place since last Friday, when Mr Alexis Tsipras, Greece’s Prime Minister, left Brussels and the negotiating table. Finally, in my conclusive remarks, some personal estimates on what has gone so wrong with the Greek issue from all sides over the past five years are given.

1. How did Greece end up in a referendum?

Referenda are a fully legitimate provision in the country’s Constitution. Although, admittedly, they are not used as a process in the same frequency as in other European countries (for example, in Switzerland), a referendum is always possible under art. 44 para. 2 of the Constitution. PM Tsipras chose to put forward a proposal for such a referendum in the very early hours of last Saturday (around 00:30 AM) after having left earlier that day from Brussels, where he had been having negotiations with Greece’s creditors for the previous 2 days. The official pretext was that he wanted to consult his cabinet ahead of a Eurogroup and EU Summit meeting scheduled for Sunday, June 28th. Quite surprisingly to almost everyone in Greece and abroad, at the end of that consultative cabinet session PM Tsipras addressed the nation announcing that he would bring to the Parliament a proposal for a referendum scheduled to take place on July 5th.

2. Was the process for calling a referendum duly followed? Were all formalities fulfilled as prescribed by law?

Frankly, no. There are several points of friction in the way the whole process leading to the official proclamation of the referendum that have been pointed out by academics, politicians and the general public opinion in Greece. The truth is that, so far, no persuasive responses have been given by the government to those outcries. It is also true that, typically, the government does not have to answer to these outcries anymore, as, during Saturday’s parliamentary session MPs of the minor opposition formally submitted an objection of unconstitutionality against the proposed referendum but the majority of Greek MPs rejected this claim and validated the cabinet’s proposal. The main points against the proposed referendum were:

a. its subject matter: according to the Greek constitution a referendum cannot be held on financial policy issues, i.e. on the way the Greek government manages taxes and public accounts and spending. The referendum’s question is whether the electorate approves (votes ‘YES’) or disapproves (votes ‘NO’) the latest agreement that was brought forward to Greece by its lenders and referred to structural reforms and actions in the field of taxation and managing of public spending the country had to undertake in order for financial support to continue beyond the midnight of Tuesday, June 30th, when Greece’s current financial program expires. Therefore, a considerable share of opinions was that a referendum on the above draft cannot be held due to contradiction with the constitutional provisions and because, even if one would say that the text put under vote was not pertaining issues of fiscal policy, only Bills passed by Parliament regulating important social matters can be put to a referendum. The cabinet finally introduced the draft proposal for referendum as one referring to crucial national matters. Nevertheless, there have been arguments against this nature of the proposed agreement, which again were left unanswered by the Government.

b. the campaign time: again, according to the Constitution, from the moment a referendum is proclaimed till the date it is held, a campaign period of up to forty days has to be observed for the sides ‘pro’ and ‘against’ the referendum question to explain their arguments to the electorate. What is more, it is prescribed by law that official support groups ‘pro’ or ‘contra’ the referendum question have to be encouraged to be set up, while the government has to secure them time and space on TV, newspapers and other media, in order to explain their reasons for upholding or opposing the referendum question. Although the law states nothing specific for a minimum duration of campaign time, 6 days are definitely a solution not in conformity with the spirit of the relevant provisions.

3. (c.) What are Greeks finally going to voice their opinion on in next Sunday’s referendum?

The answer to this question is, simultaneously, another major point of friction in the whole referendum formalities so far. The question of the referendum is whether one APPROVES (votes ‘YES’) or DISAPPROVES ( votes ‘NO’) the latest draft proposal of Greece’s lenders for the continuation of the country’s support program after the midnight of Tuesday, June 30th. You may have read in yesterday’s press that the European Commission does not concur with the Greek government’s assertion that this was the final draft. Putting political arguments aside, the problem herewith is that Greek people are asked to voice their opinion on a draft document which, at the time the referendum was called did not have any official validity nor did it acquire one whatsoever, as it was never officially adopted by the Eurogroup or the EU Council (which were supposed to do so last Sunday but never did following the Greek government’s decision to abandon the negotiations in Brussels). As a result, there are strong arguments that the question of the referendum is practically void, as no official proposal is on the table. Moreover, the law necessitates that a question that is put on referendum has to be clear, concise and understandable to the average voter, who should not necessarily possess special skills and/or technical knowledge in order to comprehend it. However, the question of the referendum is the approval or disapproval of two highly technical documents, going over fiscal policies and reforms among others, which are far beyond the comprehension capacity of the average citizen. To make matters worse, these two very texts are now officially off the table, while they didn’t even acquire any other status beyond that of ‘working papers’, making the question of the referendum invalid.

4. Is that all? Have all other formalities been carefully observed?

Unfortunately, it would take a lot of time and effort to put down the things that have been overseen, ignored or handled in an opportunistic manner so far in relation to the overall referendum process. Trying to stick to those that have a legal relevance, I should not fail to point out two last facts:

i. in an effort to go through all the formalities necessitated in a seemingly lawful manner, the government changed the law that dictates the process towards a referendum on a Sunday (28.6.2015) by means of a legislative act. i.e. a legislative instrument that is put in force immediately from the moment it is published and is debated and validated by the Parliament a posteriori.

ii. In addition, yesterday midnight, the cabinet decided on the next President of Greece’s Supreme Court (Areios Pagos). The judge that was appointed to the office is one that was several positions lower than the top rank of judges-candidates for the job, a practice that, although not illegal, had been left aside in recent years as, in the past, had been used by Greek governments to foster judges that were simultaneously favorites of the ruling party. What is also institutionally alarming is that this very judge will be the one to preside in an eventual Electoral Court (i.e. a Court that will convene in case the validity of the referendum or its outcome is formally contested with judicial means).

5. What is the financial and day-to-day aspect of the referendum in a few words?

The Financial and Business point of view

As a result of the referendum call, and in the likelihood of a long period of uncertainty, civilians started massively withdrawing money from their bank accounts. In order to comprehend the gravity of this trend, at this point, some “technical” information has to be taken into account:

i. Banks’ liquidity: Greek banks’ reserves are directly linked to the ECB reserves. In addition, when Greek banks’ reserves are in low levels, additional liquidity is offered by the ELA accounts (Emergency Liquidity Assistance). ELA provided sufficient liquidity to Greek banks the last weeks, when there were extreme cash withdrawals from Greek bank accounts (bank run). As of 30th of June the ELA to Greek banks stops.

In the face of a serious “bank run”, ECB in collaboration with the Bank of Greece imposed the so called Capital Controls in the bank and financial transactions. In addition bank institutions and Athens’ Stock Exchange will be closed from Monday, June 28th until Tuesday, July 7th (officially this period of suspension of operations has been called a Bank Holiday)

ii. The Capital Controls: As of Monday 29th of June, Greek people or companies can only do, until further notice, the following financial transactions;

· Withdrawal of as much as 60 euros per day per personal account

· Payment of debts and supplies via cash, debit or credit cards

· Electronic Money Transfer — without any limitation — to any Greek bank account

· Retired people can fully withdraw their monthly pension payments via certain bank branches

· All money transfers can only end to Greek bank accounts

All the transactions with foreign companies and institutions are generally suspended; in specific cases they are allowed (such as tuition fees, medical supplies, B2B payments) but have to be reviewed by a financial committee.

6. Then, is it all Greece’s fault? Is it only Greece to blame for this dead end?

Certainly not! What we’re witnessing these days is the culmination of 5 years of mistakes from all sides, Greece’s governments, its lenders, the people of Greece and Europe and the media.

Greek governments are mostly to be blamed for beating about the bush and avoiding to implement the necessary reforms the country needs to stand back on its feet. Instead, all these billions of euros of loans that have been received since 2010 have been used to feed an unsustainable debt while at the same time the two main reasons that make this debt unsustainable (i.e. Greece’s enormous public sector and the social insurance and pensions scheme) have been left untouched so far.

Greece’s lenders are to be blamed because, although they were very well aware of these two thorny issues, did not insist on reforms and measures on them but compromised with peripheral reforms alone or accepted to put emphasis on taxation, making it easy for Greek governments to escape from tough but necessary decisions for all these years. This policy making has been having the Greek people, especially those of low or middle income, pay the greatest share of the cost of a gigantic restructuring effort with all the wrong goals.

Both the Greek governments and Greece’s lenders are to be blamed because throughout these rough years have been collaborating behind closed doors, keeping the public uninformed of how negotiations were evolving or what progress was made. It is only during the past weekend that both sides decided to go public about the events that culminated to today’s stalemate; bitterly, now public opinion in Greece and Europe is strongly biased and with minds so firmly fixated that it takes a lot of effort for the opposite opinion to gain their attention, if that is possible at all.

The Greek people and the people of Europe are to be blamed mainly for failing to put the necessary pressure on their governments in order to be constantly informed about the Greek crisis, allowing instead themselves to be exposed only to media leakages and debates of a theoretical, political or philosophical approach to the issue but lacking most of the times crucial hard facts and figures.

And, of course, the media have ruthlessly commoditized the Greek drama, feeding people with stereotypes about Greece and its vices or about Greece’s lenders and their relentless tactics against Greeks. This poisonous media spectrum has resulted in a tremendous polarization about the Grexit…

Finally, Europe was caught totally unarmed when the whole crisis erupted back in 2010, having treated till then the Eurozone as a rose garden and agreeing without enough prudence to bring the IMF as a player in the Greek debt court; this decision might historically prove to be the most erosive for the concepts of solidarity that lie so much at heart of the European Union but which have been set aside over these years, letting IMF’s mathematical reasoning prevail.

So, what should I take home after all?
Only two things: first, that the result of the referendum is not unquestionably of the same nature as the result of a vote, i.e. it is not immediately enforceable. However, it is true that the outcome will pretty much determine Greece’s fate as member of the Eurozone and the European Union and, at the moment, not everyone seems to have realized that.
Second, Europe has reached for the first time a point where one of its member States is virtually on the verge of exiting the Union. This is the definition of uncharted waters. What happens now may seal the Union’s future for ever; and that may not be a happy scar unless prudence and honesty prevails and populism is abandoned as practice from all players involved in this game with the fate of a nation and a whole continent at stake.

(With contributions for the financial/business points from Michail Spanos, economist — entrepreneur, MSc in International Business)

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