Greece votes No: experts respond

The Greek people have voted, saying a resounding No to the terms of the bailout deal offered by their international creditors. What will this mean for Greece, the euro and the future of the EU? Our experts explain what happens next.

Costas Milas, Professor of Finance, University of Liverpool

Greek voters have confirmed their support for their prime minister, Alexis Tsipras, who now has the extremely challenging task of renegotiating a “better” deal for his country.

Nevertheless, time is very short. Greece’s economic situation is critical. On July 2, Greek banks reportedly had only €500m in cash reserves. This buffer is not even 0.5% of the €120 billion deposits that Greek citizens have to their names. It is only capital controls preventing Greek banks from collapsing under the strain of withdrawal.

Basic mathematical calculations reveal how desperate the situation is. There are roughly 9.9m registered Greek voters. Assume that – irrespective of whether they voted Yes or No – some 2.8m voters (that is, a very modest 28.2% of the total number of registered voters) decide to withdraw their daily limit of €60 from cash machines on Monday morning. Following this pattern, banks will run out of cash in three days and therefore collapse (note: 3 x 2.8m x 60 ≈ 500m).

There is therefore very little time for the Greek government to strike the deal with their creditors that will instantaneously give the ECB the “green light” to inject additional Emergency Liquidity Assistance (ELA) to Greek banks to support their cash buffer and save them from collapse. In other words, Greece does not have the luxury of playing “hard ball” with its creditors. An agreement has to be imminent.

Financial markets, expected to start very nervously on Monday morning, will probably stay relatively calm as the reality of the economic situation spelled out above is more likely than not to lead to some sort of agreement (provided, of course, that Greece’s creditors will listen to Tsipras). Whether this agreement is good for the Greeks, this is an entirely different story.

Richard Holden, Professor of economics, UNSW Australia

By calling this referendum and shutting off negotiations for nearly a week, the Syriza party has brought the Greek banking system very close to insolvency. Greece can’t print euros so Greek banks will soon need to issue IOUs, or the demand for money will not be met, leading to utter chaos. Who will accept these? How will they be valued? These are big, scary questions to which nobody knows the answer.

By voting No, Greece has tied the hands of European Central Bank president Mario Draghi. As a matter of politics there’s not much he can do in the short-term and with Greek banks insolvent he may not be able to do anything simply as a matter of law.

At least one if not all the major Greek banks are likely to fail early this week. When this happens, the Greek economy will essentially come to a halt. Nobody knows what will happen, but it surely won’t be good.

The other depressing consequence of the No vote is that Greek finance minister Yanis Varoufakis’s promise to resign if his fellow citizens voted Yes will not come about. It has been abundantly clear that Syriza representatives have been miles out of their depth from the time they took office.

Everyone with real knowledge and experience of financial markets and liquidity crises told them to stop playing chicken with the IMF and ECB. They should start listening immediately.

More to come

Richard Holden is an ARC Future Fellow.

Costas Milas does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.