Today, Greece goes to the polls to effectively decide whether its future lies within the Eurozone or not. But how did they get to this point and what will happen after the result is announced? Read on to find out…
BACKGROUND TO THE GREFERENDUM
After the euro entered circulation in 2002, Greece enjoyed a period of economic growth, fuelled by an availability of cheap credit. However, when the financial crash occurred in 2008, Greece could not escape the economic downturn as the ECB controlled the Euro. In 2009, George Papandreou (the then Greek PM) introduced a series of austerity measures in an attempt to address the country’s deficit. However, instead of addressing the problem, unemployment spiked and suicide rates increased dramatically. The Eurozone and IMF was forced to intervene in May 2010, propping up the country with a €10bn loan. By October 2012, the country was on its fourth bailout with its debt over 175% of GDP (€360bn).
After being elected earlier this year, Alexis Tsipras has attempted to negotiate a better deal for the Greek people, having campaigned on an anti-austerity ticket. However, a deal that pleased both parties was not reached by June 30th, the day Greece was due to pay €1.6bn to the IMF. Tsipras announced the referendum a few days before, which essentially asks the Greek people whether they are willing to accept further austerity measures in return for further bailout funds from the EU and the IMF.
ABOUT THE VOTE
The referendum is the first in over forty years in Greece – the last being a referendum in 1974 on the abolition of the monarchy. However, it has been criticised by many for having a question that is 72 words long. Almost 10 million Greeks will go to the polls today and decide whether to vote yes (NAI) to accept further austerity, or vote no (OXI) to reject such measures. Tsipras and the Greek government has been encouraging a no vote.
WHAT HAPPENS IF THEY VOTE YES?
A yes vote would be a clear signal that the Greek people want to remain within the Eurozone, but has some problems. Firstly, the Greek people are voting on a deal which is now not on the table, so even if Greece endorses this deal, it is not clear if the rest of the Eurozone will do the same. As well as this, a yes vote will undermine the Syriza-led government, as they have been campaigning for a no vote. The Greek Finance Minister has already vowed to resign if Greece votes yes, which might trigger new elections and cause further uncertainty.
WHAT HAPPENS IF THEY VOTE NO?
A no vote will also cause a lot of uncertainty. If the Greek people reject the deal being proposed, it would effectively be the first step towards leaving the Eurozone, dubbed a ‘Grexit’ by the world’s media. Greece could potentially default on its debts, which would likely trigger a massive financial crisis and cripple the already weakened Greek economy. Following a Grexit, Greece would have to introduce a new currency, which would likely be called the drachma. Although leaving the euro would lead to higher interest rates and a spike in inflation, a Grexit would allow Greece to have greater control and could print money to boost demand. Moreover, a devalued drachma would be attractive to tourism and would also make Greek exports more competitive.
HOW WILL THE GREEK PEOPLE VOTE?
Running up to today’s referendum, the polls have been too close to call. However, polls have suggested a slim majority for making a deal with their EU partners and staying within the Eurozone.