Nothing has really changed. The facts on the ground post-Oxi remain stubbornly as they were; grim – if not worse. Greece’s debt is unmanageable, its banks close to folding, the cash machines running out of money, its economy grinding to a halt after declining by a quarter in the past five years, and the country remains perilously close to falling out of the euro. The arguments at issue, the battle lines, remain too – the pensions, the VAT on hotels, the tax-raising capabilities of the authorities, and more.
The referendum result may have emboldened and encouraged the Greek government, but it has not dealt it a new hand. Prime Minister Alexis Tsipras’s insistence that it would somehow strengthen his position is as deluded as the hope in Brussels and elsewhere that the brow-beaten Greek people would throw out their Syriza-led government.
We are back to square one. Or minus one. And, in that sense what we are talking about needing from the lenders is not a dramatic or particularly generous volte face – the likelihood is that what Tsipras will face at the negotiating table is much the package that was put on hold when he called the referendum. (Some reports suggest he will present precisely Commission President Jean Claude Juncker’s last offer). And the gap between the two sides is reduced to millions not billions.
But there has to be a political will, and reports from the euro group suggest that there is considerable reluctance, not only from Germany, to going even another small step towards the Greeks. Newer members such as Latvia and Slovakia, and states where eurosceptic forces have made big gains such as Finland, will require to be cajoled into making further concessions – for them, the imperative of the survival of the euro has less persuasive power, the call to European solidarity means less. And as for Ireland, there appears, unfortunately, still to be a consideration that the state's "good boy" image would be undermined by the appearance of success of "bad boy" Greece.
What is needed immediately is for the ECB to commit to continuing its drip-feed emergency assistance – it can and should do so while the prospect of further meaningful talks exists, and to increasing it as soon as possible. The alternative would be to preempt talks by presenting the euro zone with a default and a fait accompli of Grexit.
Most critically, lenders must now also make explicit what they have until now been only prepared to admit off the record, that significant Greek debt rescheduling will be part of the inevitable third bail-out that must follow soon. As the IMF bluntly warned last week the level of debt is simply unsustainable. And the inevitability of eventually needing to provide such relief makes continuing to refuse to acknowledge as much a futile self-defeating strategy.