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The Greek debt crisis took another dramatic turn yesterday when its citizens voted by a 62% majority to reject the latest bailout demands from its creditors.
Interestingly, these demands were part of a bailout package that actually expired last week, so technically there was no active offer still on the table from the Troika (comprising the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission). Regardless, the vote result confirmed that the overwhelming sentiment among Greek voters is that any new negotiations with its creditors must include significant debt relief.
The result has emboldened Greek Prime Minister Tsipras, who is anxious to return to the negotiating table with his new mandate after recently promising voters that it might take as little as forty-eight hours after the referendum to reach a new agreement with the Troika. He will do this without his controversial finance minister, Yanis Varoufakis, who resigned last night after the vote in an apparent concession to the country’s creditors, who had grown tired of his defiant stances during negotiations.
Prime Minister Tsipras was careful to emphasize that this was a vote against austerity, and not against remaining in the euro zone, in a speech made after the vote: “I’m fully aware that the mandate that I was given (by voters) is not for a rupture with Europe, but a mandate boosting our negotiating strength for reaching a sustainable deal.” That said, it is difficult to imagine how Greece could reject the Troika’s demands for reform and yet remain part of the euro zone. I certainly understand why Mr. Tsipras would like to hope that this is possible, but once again, he appears to have significantly overestimated his country’s bargaining position.
I continue to believe, as I wrote last week, that the euro zone is ready to let Greece leave the common currency. While this will no doubt harm the region’s hard-won economic momentum, I don’t think the euro zone’s leaders see any real choice in the matter. If they don’t take a tough stand with Greece, what precedent will they be setting for Spain, Italy, and one day, France?