Greece threatens new elections if Eurozone rejects planned reforms

Helena Smith in Athens Monday 9 March 2015

Athens’ finance minister, Yanis Varoufakis, says referendum or new election on fiscal policy is possible if deadlock remains

A street vendor places price tickets on Greek national flags in Athens. Photograph: Kostas Tsironis/Reuters

Greece’s anti-austerity government has raised the spectre of further political strife in the crisis-plagued country by saying it will consider calling a referendum, or fresh elections, if its Eurozone partners reject proposed reforms from Athens.

Racheting up the pressure ahead of a crucial meeting of his Eurozone counterparts on Monday, the Greek finance minister, Yanis Varoufakis, said the leftist-led government would hold a plebiscite on fiscal policy if faced with deadlock.

“We are not attached to our posts. If needed, if we encounter implacability, we will resort to the Greek people either through elections or a referendum,” he told Italy’s Il Corriere della Sera in an interview on Sunday.

Varoufakis was the second high-ranking official in as many days to suggest the possibility of a referendum being held. On Saturday, Panos Kammenos, who heads the government’s junior partner in office, the small, right-wing Independent Greeks party, said such a ballot could be a “possible response” to protracted disagreement with creditor bodies propping up Greece’s debt-stricken economy.

“If [lenders] question the will of the Greek people and of the government, one possible response would be to carry out a referendum,” Kammenos, who is also defence minister, told the financial weekly Agora.

Reforms have been set as a condition for unlocking a €7.2bn (£5.2bn) tranche of aid that Athens has yet to draw down from its €240bn bailout programme agreed with the EU, the European Central Bank (ECB) and the International Monetary Fund (IMF). With Greece shut out of capital markets, the disbursement is vital to meeting debt obligations.

A letter outlining prospective government reforms – including the novel idea of clamping down on tax evasion by enlisting the support of tourists and housewives – was dispatched to the Euro group chairman Jeroen Dijsselbloem on Friday.

But with the proposals reportedly receiving a lukewarm response, the Greek finance ministry spent the weekend feverishly fine-tuning the policies. One EU official in Brussels was quoted as saying that the leaked letter “bore no relation” to the deal recently reached between Athens and its creditors enabling the country to extend its current bailout programme until June. Another described the proposals as “amateurish”.

Faced with the prospect of a new credit crunch, the prime minister, Alexis Tsipras, also worked the phones at the weekend, speaking with French President François Hollande and the ECB president Mario Draghi.

Insolvent Greece has reached this point before. But patience is also running out with Athens. The elevation to office of Tsipras’ anti-establishment Syriza party has strained relations with partners – not least Germany, which has provided the bulk of Athens’s bailout finds – more than ever before.

Six weeks after it was catapulted into power, the leftist-dominated administration has been accused of foul play, political immaturity and exhibiting a marked lack of diplomacy in negotiations.

“The new government has used a considerable amount of political capital but has received very little in return for it,” said Dr Jens Bastian, an independent economic analyst with the Macropolis think-tank in Athens.

“Trust with institutional partners at the European level has been eroded, a working relationship [between Greece and its international creditors] has yet to be established,” he added.

“From Berlin’s perspective there is an increasing amount of fatigue, irritation, confusion about the new government in Athens. Both sides have yet to find a common language, let alone a roadmap towards more constructive engagement.”

Greece’s fiscal black hole – estimated by the IMF as at least €12.2bn last year and exacerbated by a precipitous drop in tax revenues in recent months – has left the government with just enough funds to cover state expenditure but little else.

“I can only say that we have money to pay the salaries and pensions of public employees,” Varoufakis told the Italian newspaper. “For the rest we will have to see.”

Ahead of tomorrow’s meeting, creditors have signalled that they want Athens to specify reforms with “harder facts and figures” including showing a renewed commitment to the country’s stalled privatisation process. Militants on the far-left of Syriza have made such “asset stripping” a “red line” that they will not cross.

“The country is at war with lenders,” warned the interior minister, Nikos Voutsis, giving voice to the increasingly combative sentiments now colouring relations with creditors. “Every month the leash is getting tighter for us. But we are not going to proceed in this war like happy scouts ready to follow bailout policies.”

With the rhetoric at such levels, Athens is treading a very fine line. Piling on the pressure, senior ECB officials also repeated at the weekend that the Frankfurt-based institution would not allow Greece to issue more short-term debt on the basis that it would be tantamount to illegally financing the Greek government. Last week, Draghi insisted that lending to Greek banks would only resume once the new government in Athens implemented reforms.

Greece’s young premier has said in the absence of rescue funds that his administration will resort to short-term treasury bills to cover cash shortfalls in the coming weeks.

“If the ECB insists on this decision, which in our opinion is not the right one, then it will be taking on a major responsibility,” Tsipras told Der Spiegel before appealing to Draghi by phone on Saturday to change course.

With the current impasse threatening to lead Greece into defaulting on its payments and the spectre of a referendum renewing fears of further turmoil for an economy already blighted by the twin ills of bankruptcy and political uncertainty, Varoufakis’ remarks were quickly described as “irresponsible” by the political opposition.

Former prime minister Antonis Samaras, who now heads the main opposition centre-right New Democracy party, said a plebiscite would be “a very bad development”.

The government clarified on Sunday that a referendum would only take place if negotiations failed and would not relate to Greece’s place in the Eurozone – which Tsipras insists is a given – but government policy.

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