No matter which way the referendum goes, Greece faces more pain

A woman leaves a polling booth to cast her ballot during the referendum in Athens, Greece. Photo: MARKO DJURICA
A woman leaves a polling booth to cast her ballot during the referendum in Athens, Greece. Photo: MARKO DJURICA

As the sun set in Australia on Sunday, the Greek people were taking part in a historic referendum that will result in further financial pain for the struggling nation, and possibly an exit from the eurozone.

Greek citizens voted on Sunday on whether to accept the conditions of a bailout agreement worth €7.2 billion offered by the International Monetary Fund. This would have enabled Greece to meet its urgent debts among the more than $350 billion owed to creditors including the IMF and the European Central Bank.

Much of this money was borrowed to support its banks and ongoing financial sustainability as the nation battled to restart its stagnating economy but the mounting debt has pushed the country into a more dire economic situation that has seen jobs disappear, wages slashed and essentials such as pensions for the elderly reduced significantly.

But on the final night of negotiations for the latest tranche of bail-out funding, Greek Prime Minister Alexis Tsipras quit negotiations to put the deal's conditions directly to his constituents.

These conditions include further cuts to government services and higher taxes, after years of tightening financial policies as jobs disappeared, and wages and pensions halved.

Greek citizens have spent the last week locked out of their banks, unable to withdraw more than €60 at ATMs as the government tries to stop a run on the banks. Many in the Australian Greek community have been sending money home and trying to help their families emigrate to Australia.

Those in Greece are now facing a bewildering choice at an election where both options will see their day-to-day living worsen. Pre-polling did not present either side as a clear winner.

A "yes" vote would enable the country's leaders to negotiate a new bailout agreement. This would result in further austerity measures, but avert an immediate financial disaster and exit from the euro zone.

But a "yes" win would also throw the country into political strife, as Prime Minster Tsipras and other Syriza leaders have been urging citizens to vote "no".

It is likely these leaders would need to resign and even call snap elections, as they would be unable to negotiate a new bailout agreement due to critically low trust levels with Greece's creditors.

It is possible a new bailout agreement may still not be reached after elections if a new, anti-bailout government is formed. However, this is unlikely.

A "yes" vote would be the least calamitous for Greece as well as the wider financial markets, but many in Greece argue they are being bullied by their creditors and want to vote no to provide a circuit breaker.

Ms Tsipras has argued a no vote would push the country's creditors to offer a fairer bailout agreement.

However if the creditors don't, the country's financial system and stressed population would veer even closer to collapse. Greece would be forced to issue state pledges of funds to support banks and pay the public service, pushing it into further debt.

A "no" vote would leave the nation isolated, still with a huge hole in its budget, considerable strain on its people, no new creditors, few possible allies and a likely exit of the eurozone, which could be disastrous for the weak economy, which would need to adopt a new currency.

This at least would give the Greek government more control over their currency, enabling it to print more money to push up purchasing and investment. It would also help boost one of its key industries: tourism.

But it would also be difficult to turn existing loans, both on an international and domestic level, into the new drachma, causing confusion and strife.

Jobs would continue to be scarce, with wages and pensions low. Many who could afford to leave the country would, leaving behind the poorest and most desperate.

And the multi-billion dollar debt would still need to be paid, with several key deadlines coming up in late 2015. Greece defaulting on its debt would trigger a broader financial crisis across Europe.

While Greece may be forced out of the eurozone and its shared currency, there is no way to eject it from the European Union.

This story No matter which way the referendum goes, Greece faces more pain first appeared on The Sydney Morning Herald.