CFR Update: Top of the Agenda 7/6 Greeks Reject Austerity in Referendum

TOP OF THE AGENDA

Greeks Reject Austerity in Referendum

Greek Finance Minister Yanis Varoufakis resigned (Reuters) Monday in what is seen as a move to pave the way for renewed negotiations between Greece and its international creditors after Greeks rejected (FT) EU austerity measures tied to bailout funding in a national referendum on Sunday. More than 61 percent voted 'no,' raising doubts of Greece's future in the eurozone. Greece's chief negotiator with creditors, Euclid Tsakalotos, is expected to succeed Varoufakis. German Chancellor Angela Merkel will consult (Bloomberg) with French President Francois Hollande on Monday ahead of a meeting between eurozone leaders slated for Tuesday in Brussels. Meanwhile, Greece faces a July 20 deadline (WSJ) to make 3.5 billion euro payment to the European Central Bank.

ANALYSIS

Europe's monetary union is neither an optimal currency area nor a strong political project—for years politics has provided the fig leaf to cover the single currency's economic flaws. At best the monetary union is a half-baked experiment with huge shortfalls in its institutional design. At worst, it is an unsustainable mess where voters' preferences in one country (for instance, for more accommodating fiscal policies) sometime conflict with the preferences of voters in another country (for instance for more fiscal 'probity')," writes Paola Subacchi in Foreign Policy.

"There is one last chance to get a deal that keeps Greece within the eurozone, and if that fails an exit makes most sense for Greece and for Europe.  But absent a better policy mix than has been seen so far, depreciation and default will not provide the basis for long-term growth. Today, achieving these structural reforms appears a hard task for any Greek government," writes CFR's Robert Kahn in a recent blog post.

"Mr. Tsipras has called for a united front and seems to have sidelined ministers who took extreme positions. This is a good start that provides hope that an agreement can be reached before it is too late. Otherwise, the future of Greece will be bleak and the damage will take decades to undo. Exiting the euro and issuing a new currency would unleash inflation, destroy institutions and bring poverty. The Greek government has gambled with the livelihood of future generations. It must now stop and work constructively," writes former Greek Finance Minister Gikas Hardouvelis in the New York Times.