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WHAT DOES THE NO VOTE MEAN FOR GREECE?

What does the 'no' vote mean for Greece?-BUSINESS SPECTATOR

Early results indicate that the Greek people have voted 'no' to the terms of the bailout deal offered by their international creditors. What will this mean for Greece, the euro and the future of the EU? Experts explain what happens next.

Costas Milas, Professor of Finance, University of Liverpool

Greek voters have confirmed their support for their prime minister, Alexis Tsipras, who now has the extremely challenging task of renegotiating a 'better' deal for his country.

Nevertheless, time is very short. Greece’s economic situation is critical. On July 2, Greek banks reportedly had only €500m in cash reserves. This buffer is not even 0.5 per cent of the €120 billion deposits that Greek citizens have to their names. It is only capital controls preventing Greek banks from collapsing under the strain of withdrawal.

Basic mathematical calculations reveal how desperate the situation is. There are roughly9.9m registered Greek voters. Assume that -- irrespective of whether they voted 'yes' or 'no' -- some 2.8m voters (that is, a very modest 28.2 per cent of the total number of registered voters) decide to withdraw their daily limit of €60 from cash machines on Monday morning. Following this pattern, banks will run out of cash in three days and therefore collapse (note: 3 x 2.8m x 60 ≈ 500m).

There is therefore very little time for the Greek government to strike the deal with their creditors that will instantaneously give the ECB the green light to inject additional Emergency Liquidity Assistance to Greek banks to support their cash buffer and save them from collapse. In other words, Greece does not have the luxury of playing hard ball with its creditors. An agreement has to be imminent.

Financial markets, expected to start very nervously on Monday morning, will probably stay relatively calm as the reality of the economic situation spelled out above is more likely than not to lead to some sort of agreement (provided, of course, that Greece’s creditors will listen to Tsipras). Whether this agreement is good for the Greeks, this is an entirely different story.

Richard Holden, Professor of economics, UNSW Australia

By calling this referendum and shutting off negotiations for nearly a week, the Syriza party has brought the Greek banking system very close to insolvency. Greece can’t print euros so Greek banks will soon need to issue IOUs, or the demand for money will not be met, leading to utter chaos. Who will accept these? How will they be valued? These are big, scary questions to which nobody knows the answer.

By voting 'no', Greece has tied the hands of European Central Bank president Mario Draghi. As a matter of politics there’s not much he can do in the short-term and with Greek banks insolvent he may not be able to do anything simply as a matter of law.

At least one, if not all, of the major Greek banks are likely to fail early this week. When this happens, the Greek economy will essentially come to a halt. Nobody knows what will happen, but it surely won’t be good.

The other depressing consequence of the 'no' vote is that Greek finance minister Yanis Varoufakis’s promise to resign if his fellow citizens voted 'yes' will not come about. It has been abundantly clear that Syriza representatives have been miles out of their depth from the time they took office.

Everyone with real knowledge and experience of financial markets and liquidity crises told them to stop playing chicken with the IMF and ECB. They should start listening immediately.

George Kyris, Lecturer in International and European Politics, University of Birmingham

A historic referendum for Greece and Europe tells a very interesting story. While results indicate that a sizeable 61 per cent rejected existing policies towards the Greek crisis, polls have consistently shown that the majority of Greeks want to remain in the eurozone. This exposes the success of Syriza based on its populism, which has allowed Greeks to think that they can stay a credible member of the EU, while at the same time taking unilateral decisions and refusing to recognise the obligations of their eurozone membership.

This not only creates unrealistic expectations but it is also a very sad result for the relationship between the EU and its citizens, which, once again, falls victim to national governments’ short-term strategies. In this climate of unrealistic expectations, the Greek government embarks on a mission impossible to secure a better deal for the country, where economic, political and social peace has been seriously undermined in the past few months and week especially.

The first reactions of Greece’s EU partners to the No vote are far from positive.

In his address after the referendum, Alexis Tsipras indicated the formation of an ad hoc national council with the participation of major political parties to prepare the negotiation strategy. The next few days will show if a more united Greek front is possible and capable of improving things for the crisis-hit country.

Ross Buckley, Professor, Faculty of Law at UNSW Australia

The Greek people have decisively voted 'no' to more austerity imposed from Frankfurt. This is unsurprising. Voters rarely vote for higher taxes and lower pensions. However other polls reveal clearly that the Greek people overwhelmingly also want to retain the euro. So this is one giant gamble. The Greeks are betting that the potential damage to other countries, especially Spain and Italy, and thus to the very fabric of the euro, is simply too great for the Eurozone to eject Greece.

When voting on Sunday most Greeks probably felt they were reclaiming control of their own economy. However, paradoxically, the 'no' vote has done the opposite. Greece’s short to medium term economic future is now in the hands of others, particularly Germany and France.

Greek banks today are all but out of euros. Normally in this situation a nation’s central bank simply prints more currency. Greece can’t do that, as no one country controls production of the euro. So the options over the next month or so seem to be that either Germany, France and the European Central Bank blink, and extend more credit to Greece, or Greece’s financial system will cease functioning and ultimately it will be forced to print drachma.



Costas Milas is Professor of Finance at University of Liverpool.

Richard Holden is Professor of Economics at UNSW Australia.