Close to the threshold

Economist
June 27, 2015

"The crisis has commenced," declared Michael Noonan, Ireland's normally mild-mannered finance minister, as he left today's Eurogroup meeting in Brussels. It is hard to disagree. One week ago Greece-watchers were wondering whether Alexis Tsipras's left-wing government could strike a deal with its creditors in time to unlock the bail-out money it needs to avoid defaulting on a €1.5 billion ($1.7 billion) IMF payment due on June 30th. It is a sign of how quickly matters have deteriorated in the last 24 hours that the IMF bill, which will now surely be missed, is now a sideshow. Instead, after Mr Tsipras unexpectedly called a referendum over the creditors' latest offer, the question is whether there is still a place for Greece inside the euro zone.

On July 5th, assuming Mr Tsipras's plan holds, Greeks will vote on whether to approve a set of reforms and fiscal adjustments proposed last week to Mr Tsipras's government by the creditor institutions (the European Commission, European Central Bank and IMF). Announcing the referendum last night, Mr Tsipras made his own view clear. The creditors' offer, he said, proved that "certain partners and members of the institutions are not interested in reaching a viable and beneficial agreement for all parties, but rather the humiliation of the Greek people." After Mr Tsipras's speech Greek ministers fell over each other to say they would recommend a "no" vote.

Mr Tsipras's declaration seemed an acknowledgement of something his government has long denied: that Greece must choose between the creditors' path of austerity and leaving the euro. But it raises more questions than answers. After having insulted his euro-zone partners last night Mr Tsipras said he would ask them for a "short extension" of Greece's bail-out, which expires on June 30th, to cover the period of the referendum. At their meeting today, finance ministers outright rejected that suggestion. Without a radical change of direction from Mr Tsipras, therefore, the bail-out will expire on June 30th, along with €16.3 billion in potential bail-out support, and Greeks will be voting on a defunct proposal. The meaning of a "yes" vote will be impossible to divine.

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