Greece on the brink of collapse after Tsipras’ referendum announcement?

On Friday evening Greek Prime Minister Alexis Tsipras announced that a referendum about the proposed Greek reform plan will be held next Sunday, 5 July, European and US media widely report – a proposal already approved by the Hellenic Parliament, Greek media say. Some – such as L’Humanité and Libération – defend the principle of a referendum for the Greek people to decide their future in the euro area (although Libération slams what it considers as “irresponsible statements” from Alexis Tsipras who called on his voters to reject the creditors’ ultimatum), while others – such as The Daily Telegraph argues that the Greek government, by holding a bailout referendum, is behaving anti-democratically.

What happened during the last 48 hours is unprecedented at a euro area level and generally in the EU, since there has been no other member state that was so isolated in the past, Naftemporiki comments. With this announcement – which, according to The Daily Telegraph, surprised everyone, including Greece’s own team of negotiators in Brussels, who learnt of the news on Twitter – Greek negotiations have completely stalled, and, according to an editorial in Le Figaro, only a major coup de théâtre could lead to an eleventh-hour agreement.

In an interview with Handelsblatt, European Commissioner Günther Oettinger states that, by calling for a referendum, Alexis Tsipras was “uncooperative.” In a move designed to give transparency to ordinary Greeks ahead of the 5 July referendum, EC President Jean-Claude Juncker published, on twitter, the document concerning the last proposal made by the international creditors to Greece, La Repubblica reports.

Besides, Commissioner Marianne Thyssen wonders in De Zevende Dag what the Greek referendum will be about, as nothing has yet been agreed upon. Most European newspapers now see Greece on the brink of default. Greece faces a debt default within 48 hours after the government made clear it will not repay a €1.5 billion loan to the IMF that expires on Tuesday. The move could lead to the country’s effective bankruptcy, according to analysts quoted by The Daily Telegraph. On Tuesday at midnight, Greece is indeed expected to lose the safety net offered by two bailouts since 2010 and to default on its €1.6 billion debt repayment to the IMF, Le Figaro writes.

What is more, according to Forbes.com, the ECB is expected to end emergency lending to Greece’s banks on Sunday, the BBC understands. And, if the ECB really does close the ELA, then Greece’s default will lead to Greek banks falling over, and the necessity of having a banking system will bring back the drachma. Greece, the INYT further reports, will keep its banks closed on Monday and place restrictions on the withdrawal and transfer of money, Prime Minster Tsipras said in a televised address Sunday night, as Athens tries to avert a financial collapse.

The country’s downfall and the euro area exit will be irreversible next Sunday if the Greeks reject the euro area’s last offer via a referendum, Le Figaro notes. The less pessimistic people in Brussels say the referendum will turn out to be a vote for or against the single currency. But this scenario remains risky, and EC President Jean-Claude Juncker and a few others are quietly trying to resume the talks abruptly halted by Alexis Tsipras’ referendum announcement.

According to a European source quoted by Le Figaro, a deal could be reached, with Mr Tsipras accepting to campaign for the ‘yes’ side in return for debt relief. According to Naftemporiki, Brussels indeed sent a message yesterday that the negotiations can continue, noting that Greece should remain a member of the euro area. EcoFin Commissioner Pierre Moscovici said that the negotiations door is still open. The IMF also made an intervention, noting that the talks must continue. As to EP President Martin Schulz, he noted in an interview with ZDF that, “behind the curtains,” representatives of several member states and he himself continue to try and “bring the Greek government to its senses” with personal talks.

Yanis Varoufakis does not consider the negotiations to be interrupted or terminated, he told Bild. A last-minute reprieve is still possible, the WSJE further claims, but if not the Greeks will have committed suicide by ignoring economic reality. A solution, even at the last minute, is sought – Naftemporiki alarmingly reports – for the country to avoid a disorderly default with catastrophic consequences for the economy and the citizens and an exit from the euro area, a Grexit seen by several European media as having a potential domino effect.

French Prime Minister Manuel Valls mentioned on Europe 1 the possibility of contagion to other countries. The outcome of the situation in Greece will decide the “fate of the eurozone,” The Guardian’s Economics Editor Larry Elliott writes. What is more, in Les Echos, Jean-Marc Vittori says that the main problem with the Grexit is that when there is the next euro area crisis – which is bound to happen – investors will remember that the euro area is not set in stone. EC Vice-President Valdis Dombrovskis’ cabinet chief Taneli Lahti, however, estimates in an interview with YLE that the EC does not believe in any real danger of the Greek crisis spreading. He notes that the EU has implemented many reforms in recent years that its structures and tools have been strengthened, enabling it to cope with greater turbulences and instability for some time.