Greeks Say No To Austerity Measures In Historic Referendum – Now What?

Ramsha Sadiq Khan
61% Greeks voted ‘no’ to the bailout plans proposed by international creditors to save the country from going bankrupt, but what’s going to happen next?

Greece Referendum

In one of the most historic referendums worldwide, Greeks rejected the series of plans proposed by the European Union, International Monetary Fund and European Central Bank to bailout Greece from its debt crisis.

The three leading bodies – collectively known as the Troika – have provided Greece with 220 billion euros since the global financial crisis of 2008 to pay off other loans. However, since the country is on the verge of an economic collapse, the Troika offered a set of proposals that Greece would have to agree to in order to receive $8.1 billion in loans.

The government decided to organize a referendum and Greek Prime Minister Alexis Tsipras – leader of the left-wing Syriza coalition – campaigned hard for the people to vote “no.” He claimed that rejecting these demands will give Athens a better chance at negotiating a viable deal with its creditors.

Meanwhile, supporters dubbed this bailout plan as the only way for Greece to stay within the eurozone.

Nonetheless, more than 60% of the masses spurned the austerity measures for an extension of bailout funds and decided to side with the government, believing that banks and lenders had set terms too harsh for them to accept.

“Today we celebrate the victory of democracy. We proved even in the most difficult circumstances that democracy won’t be blackmailed,” said Tsipras in a televised address. “But I am aware that the mandate you gave me is not a mandate for rupture.” He added that he would seek to negotiate a viable solution with the country’s creditors.

Greece debt crisis

However, after what is being perceived a victory for Greeks, the country has entered into an uncharted territory where its entire fiscal future remains uncertain. The no vote also sent European leaders scrambling. German Chancellor Angela Merkel is to meet in Paris with her French counterpart President Francois Hollande to discuss a response to the Greek vote. A eurozone leaders’ summit has also been called.

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Here are a few things that might happen:

Greece may have to leave eurozone:

Greece’s left-wing government believes that the eurozone's leaders really don't want their country to leave, so calling out the Troika’s bluff will strengthen Greece’s hand and help it get a better deal. Since Greece never really recovered from the financial crisis of 2008, it doesn’t seem to have much leverage to its benefit.

If the negotiations with European authorities collapse, Greece will have to choose between drastic spending cuts or defaulting on its debts. The expected outcome is Greece's ouster from the eurozone.

Run out of cash:

Since Greek banks carry  heavy exposure to their government's own debt, they are at great risk. If Greece defaults on its own debts and is unable to repay the loans, the banks might go bust – which means the customers’ money might be in jeopardy.

Greeks referendum

Part ways with euro:

In case Greece exits the eurozone, it would have to dump the euro and print its own currency, drachmas. Although, that could be good for the Greek economy in the long-run, the logistical challenges of switching currencies would be a little difficult to tackle. For instance, all ATMs, computers and other commerce machinery that operate with euros will also have to be reprogrammed, which will take months.

The financial crisis may get worse:

If negotiations between Athens and its creditors don’t work out and Greece defaults on its debts, the financial crisis will get even worse, which means rejecting the austerity measures will result in increased austerity, higher taxes and public cuts.

However, in this entire economic doldrums, one thing is for certain.

The Syriza government has won:

Rejecting the Troika’s bailout plan is an endorsement of the left-wing Syriza government's views, thus strengthening its powers.

Read More: This Is What People In Greece Are Going Through Amid Financial Crisis