The Day The Euro Died

On the evening of Friday June 26th, talks broke down between Greece and its creditors. The creditors had once more rejected Greece’s proposal and put forward their own version including tax and pension changes that Greece had already said it would not accept.

In the early hours of Saturday morning, June 27th, the Greek Prime Minister Alexis Tsipras announced that the people of Greece would be asked to decide whether they wished to accept the creditors’ proposal. A referendum will be held on July 5th.

The question that will be put to the Greek people is only about the creditors’ proposal, not about Greece’s membership of the Euro. But this referendum has huge historical and emotional resonances, deliberately created by the Greek government in a manner reminiscent of Alex Salmond’s linking of the Scottish independence referendum to the historic victory of the Scots over the English at the Battle of Bannockburn in 1314. Salmond’s move nearly worked – but in the end the economics won and the Scots rejected independence. Similarly, Tsipras’s subtle attempt to link this referendum to Greece’s rejection of Benito Mussolini’s ultimatum in October 1940 may not be enough to overcome Greek fears. Opinion polls so far suggest that a “Yes” vote is likely, though exactly how the question was framed in these polls is unclear.

But the creditor side and the world’s media quickly decided that the referendum was actually about Euro membership. A “No” vote would result in Greek exit from the Eurozone. A “Yes” vote would mean the fall of the Syriza government. Not surprisingly, the Greek opposition parties called for a “Yes” vote.

Even less surprisingly, the creditor side attempted to derail the referendum completely. Christine Lagarde of the IMF dubbed it “invalid” on the grounds that the current bailout expires on June 30th. President Juncker of the European Commission issued a press release “in the interests of transparency and for the information of the Greek people”, to which was attached a 10-page document outlining a slightly altered proposal from the creditor side. The press release says that this proposal was under discussion until the Greeks walked out:

Discussions on this text were ongoing with the Greek authorities on Friday night in view of the Eurogroup of 27 June 2015. The understanding of all parties involved was that this Eurogroup meeting should achieve a comprehensive deal for Greece, one that would have included not just the measures to be jointly agreed, but would also have addressed future financing needs and the sustainability of the Greek debt. It also included support for a Commission-led package for a new start for jobs and growth in Greece, boosting recovery of and investment in the real economy, which was discussed and endorsed by the College of Commissioners on Wednesday 24 June 2015.

However, neither this latest version of the document, nor an outline of a comprehensive deal could be formally finalised and presented to the Eurogroup due to the unilateral decision of the Greek authorities to abandon the process on the evening of 26 June 2015.

The Greek people are being asked to vote on the proposal put to the Eurogroup. The release of a new version of the proposal, and the suggestion that debt relief would have been up for discussion too, is thus clearly intended to invalidate the referendum.

Leftist youth hold placards reading ‘no to agreement ‘ in front of the Greek parliament during a demonstration calling for a ‘NO’ at a referendum and for Greece’s exit from the eurozone on June 28, 2015. Greek Prime Minister Alexis Tsipras stunned Europe late Friday with a surprise call for a July 5 referendum on the latest cash-for-reforms package and advised voters against backing a deal that he said spelled further ‘humiliation’. Photo credit: LOUISA GOULIAMAKI/AFP/Getty Images

Meanwhile, the world’s media, supported by a succession of leaks from “unnamed sources”, was speculating that the imminent expiry of the existing bailout program would force the ECB to end ELA funding of Greece’s banks, resulting in closure of the banks and capital controls. Unsurprisingly, withdrawals from Greek ATMs increased.