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Greece: How Long Can Tsipras Cling to Power?

Will Greeks’ common sense on the euro trump over the undeniable charisma of Tsipras?

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  • If Greece votes “no,” pro-drachma hardliners would stick with Syriza, but not the swing voters.
  • If Greece votes "no," Europe would still like to keep Greece in the EU and NATO.
  • If Greece votes “no,” Europe would not go out of its way to keep Greece in the euro.
  • A “yes” would restore trust and pave the way for a Greek economic recovery in the euro.
  • A “no” may not save Tsipras for very long and could mean a Grexit abyss for the Greeks.

Let’s think about Greek politics post referendum. (See TG’s recent coverage of Greece here)

For now, the outcome of the Greek referendum on Sunday is still too close to call. However, the political future of Greece’s prime minister seems more obvious. Chances are that he will no longer be prime minister by the end of the year.

Alexis Tsipras could lose his referendum on Sunday. That would be great for Greece but bad for him.

Or, he could win it if he gets the “no” he is campaigning for. However, once the Greeks realize that, after a “no” vote, he could actually be leading them out of the euro, then he is sure to face a popular backlash.

Grexit would mean much worse hardship for ordinary Greeks than structural reform measures, such as the faster increase in the effective retirement age and the rise in some VAT rates demanded so far by Greece’s creditors as conditions for support loans.

If Greeks vote “yes” in the referendum

With that outcome, Tsipras probably cannot stay in office for long. Ideally, somebody from Syriza’s less loony wing, such as deputy prime minister Dragasakis, would bring together a formal or informal coalition of all pro-European forces to close the deal with Europe.

Tsipras may either resign immediately to join Yanis Varoufakis, his ex-finance minister, on talk show circuits abroad.

Or he could stay on as a figurehead prime minister for a while until the political deck is reshuffled, probably with new elections, once a formal or de facto interim national unity government has brought Greece firmly back on the pro-European track.

If the “no” side wins the referendum

Tsipras will ride high for a while. But as was the case this past January, he will not be able to deliver on his promise.

In January, he had promised that Europe and the IMF would send him more money, which he could then spend. That did not happen.

He now promises that Europe and the IMF will send more money to a Greece that says “no” to the euro than to a Greece that says “yes”. That will not happen.

75-80% of Greeks want to keep the euro

If banks remain closed week after week, if pensions can no longer be paid in euros, if gas stations run out of gas, if Greeks realize that a “no” to the euro did indeed mean that no more euros would be coming, the political backlash could be huge.

Shortly after “IOUs” issued by the Greek government appear (in lieu of more euros) as a prelude to a Grexit, support for Syriza may collapse even faster than it had done for PASOK before. Pro-drachma hardliners would stick with Syriza. But not the swing voters.

If Greece votes “no,” our best guess is that Europe would still like to keep Greece in the EU and NATO.

Europe would offer money to cushion the humanitarian crisis. It would continue to negotiate. But it would not go out of its way to keep Greece in the euro.

Of course, Tsipras may simply try to ignore the referendum result if it is a “no” and propose to Europe to sign the deal against which he called the referendum, with no more than minor modifications.

His last-minute letter last Tuesday night came close to that.

But how could he get that through his own party? His own hardliners will take a referendum “no” as a vote in favor of Grexit.

And Europe, as well as the IMF, have hardened rather than weakened their positions after the old bailout has expired.

Getting a new bailout is much more politically difficult than it would have been to extend the old one.

In addition, the IMF has already warned that Greece’s financing need is now much bigger than it was before Tsipras came to power.

Having called the referendum and shattered trust, Tsipras would now have to offer many more concessions than before to strike any deal with the Eurogroup and get it approved by the Bundestag.

That’s unlikely to happen.

What lies ahead

The political outlook for Tsipras looks rough. Let’s hope that with a “yes” on Sunday, Greek voters shorten the agony, restore trust and pave way for a Greek economic recovery in the euro.

A “no” may not save Tsipras for very long. But it could mean a Grexit abyss for the people of Greece.

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About Holger Schmieding

Holger Schmieding is chief economist at Berenberg Bank in London. [United Kingdom] Follow him @Berenberg_Econ

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