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The Greek Crisis: July 2015

31 MINS READJul 31, 2015 | 00:00 GMT
The Greek Crisis: July 2015 (DISPLAY)
(Stratfor)

Editor's Note: Greece is a country in crisis. Facing financial, political and social uncertainty, Greece's ruling Syriza party has been trying to cut a deal with the European Union to keep the Greek economy afloat. But European institutions and prominent member countries such as Germany are reaching the limits of their patience when it comes to tolerating Greek debt. Something has to give, and Athens is in an extremely vulnerable position. Stratfor is logging the latest developments in this crisis update.


July 31

Greek Prime Minister Alexis Tsipras barely avoided one of the most immediate challenges to his government early July 31 when the central committee of the ruling Syriza party decided that a congress to define the future of the party will be held in September. Rebels within the party wanted instead to hold the congress immediately as part of their push to end negotiations with creditors and return Greece to its previous national currency, the drachma.
 
This is only a temporary victory for Tsipras. By delaying the party congress, the prime minister will remain in charge of the government in Athens long enough to negotiate a third bailout program with Greece's creditors. Tsipras wants to sign a deal before Aug. 20, when Athens has to repay 3.2 billion euros ($3.51 billion) to the European Central Bank. He is also depending on the creditors to agree to some form of debt relief for Greece.
 
During a tense party summit, Tsipras criticized the creditors' push for austerity measures but described the bailout negotiations as a necessary "tactical retreat" to allow Greece to remain in the eurozone. Most Greeks want to keep the common currency and Tsipras is still the most popular politician in the country. He is also likely counting on the fact that most Syriza members want to avoid a collapse of the government and the call for early elections because they lack an obvious alternative candidate who could beat him.
 
To complicate things further, the International Monetary Fund said it would not participate in a new bailout unless Athens agrees to a comprehensive set of reforms and there is a clear prospect for debt relief for Greece. This is not a definitive decision. The bailout program could start with EU funds alone, and the International Monetary Fund could provide money later in the process, especially as eurozone governments have said debt relief could be discussed in the future. However, a bailout program that lacks International Monetary Fund participation could be harder for the German parliament to ratify.
 
Today's decision by the Syriza central committee is only the latest in a series of Pyrrhic victories for Tsipras. During the meeting, at least 17 members of the central committee resigned to protest the prime minister. After the meeting, deputy Prime Minister Yannis Dragasakis, accusing the rebels of behaving like a party-within-a-party, asked for a "refoundation" of Syriza. Even if the Syriza congress in September confirms Tsipras' policies, he will struggle to eradicate the party's rebel members in parliament. In the meantime, the prime minister will continue to depend on the moderate opposition to approve economic reforms. Thus the political crisis within Syriza persists, and a rupture of the party leading to early elections is becoming increasingly likely.

July 29

As negotiations over Greece's third bailout program continue, the ruling Syriza party struggles to remain united. Prime Minister Alexis Tsipras' decision to introduce painful austerity measures in return for new financial aid has caused conflict within Syriza. A Cabinet reshuffle earlier this month was not enough to appease dissent, and now the party is considering calling a special summit to define its future.

Syriza, or the Coalition of the Radical Left, was divided long before it won January's general elections, with some members believing Greece should remain in the eurozone and others pushing for a return to its former national currency, the drachma. These disagreements were temporarily settled during a party congress in 2013, when Syriza decided that its official line would be to support the euro. But Tsipras' recent decision reignited the debate. Former Energy Minister Panagiotis Lafazanis, leader of a group of rebel lawmakers known as the Left Bloc, demanded the return to the drachma and accused Tsipras of betraying the people who voted against austerity in the July 5 referendum.

Recent revelations by former Finance Minister Yanis Varoufakis about an alleged plan to return to the drachma are adding fuel to the fire. On July 29, Deputy Finance Minister Dimitris Mardas warned that leaving the eurozone would result in a substantial devaluation that would hurt Greece's imports and lead to a decline in real income for Greek households. Tsipras understands that the party divisions are not sustainable in the long run, and believes Syriza should hold a new party congress (potentially in September) to decide on an official position and to force dissident members to either accept the party's line or resign. Syriza's central committee will meet July 30 to debate whether to hold a party congress.

Early elections seem likely, but their exact date will depend on domestic and foreign factors. Tax hikes and spending cuts will have a negative impact on most Greeks, and Tsipras will likely want to hold early elections to form a more cohesive government while his popularity remains high. However, he needs to extract concessions from Greece's creditors first, especially on debt relief.

After having retracted on most of his campaign promises to receive a third bailout, Tsipras is counting on the promise of debt relief to show voters that the sacrifice is worthwhile. But Greece is unlikely to be promised debt relief in the short term. Portugal and Spain will hold general elections between October and December, and the conservative governments in Lisbon and Madrid oppose leniency to Athens. In Germany, conservative parliamentarians want Greece to implement further reforms before debt relief is negotiated.

As a result, Tsipras will probably decide to complete the bailout negotiations before calling for elections. Athens' goal is to have a deal by August 20, when Greece has to pay 3.2 billion euros to the European Central Bank. An agreement is likely, but it may not happen as fast as Athens wants. The creditors are demanding additional reforms before approving a third bailout for Greece, which could create further problems for the unofficial alliance between Syriza and the moderate opposition. If no agreement on a third bailout is reached by mid-September, the creditors are likely to authorize a new bridging loan for Greece, so that Athens can make its payment to the ECB in time. Greece will not default on its debt with the ECB or leave the euro in the coming weeks, but a Grexit is still probable in the long run.

The recent calm in Greece will not last. The measures demanded by the creditors will keep Greece in recession, and most households will not see their economic situation improve any time soon. Most Greeks are still supportive of eurozone membership, influencing the government's actions. But as the economic crisis persists and with political fragility set to continue, pressure for a Grexit (both domestic and foreign) will probably resurface later in the year.

July 21

The Greek crisis entered a brief phase of relative stability July 20 when the Greek government made a payment to the European Central Bank just in time to avoid a default with the institution. On the same day, Athens paid a debt to the International Monetary Fund that had been in arrears since late June. Greek banks also reopened, though capital controls will remain in place for the foreseeable future.

The "new normal" in Greece also means that the country will become more expensive for Greeks and visitors alike (new value-added tax rates also came into effect July 20). This will be followed in October by other controversial reforms, such as higher taxes for tourism-related activities and the abolition of value-added tax discounts for some Greek islands. Moreover, the "new normal" does not mean the crisis is over. On the contrary, the Greek economy will probably see another year of deep contraction in 2015, and political instability will continue.

The current period of relative calm has also come at great political cost to the Greek government. Greek Prime Minister Alexis Tsipras reshuffled his Cabinet on July 18 to remove some of the most radical members of his team, including former Energy Minister Panagiotis Lafazanis, the leader of Syriza's so-called Left Platform faction. Changing the Cabinet, however, will not be enough to stabilize the political environment. The approval of the deal with the creditors created a split within Syriza, and Tsipras now depends on support from the opposition to pass legislation.

This will probably force the prime minister to call early elections to try to form a more cohesive government that can implement Greece's third bailout. Tsipras will probably wait for the end of negotiations with creditors before dissolving his current government. The talks to finalize the third bailout will take several weeks, with the new program announced no earlier than mid-August. Some Greek officials have suggested early elections could take place in September or October. This indicates Tsipras wants the Greeks to vote again before tax hikes and spending cuts cause him to lose popularity among voters.

In the case of early elections, both Tsipras and the opposition will have to make strategic decisions. The prime minister is still the most popular politician in Greece, so he will likely perform well. However, even if he is re-elected, he will have the tough task of introducing unpopular measures. The moderate opposition parties (center-right New Democracy, center-left Panhellenic Socialist Movement and centrist To Potami) will have to decide whether to form an electoral alliance or remain divided. Neither of these options is ideal. An alliance could prove difficult because the parties would have to agree on a common candidate, while remaining divided would probably weaken their chances of winning. The election could be further complicated if rebel members of Syriza choose to form their own left-wing party. Since the Greek economic crisis is far from over, there is even room for the emergence of new anti-system parties.

Greece's apparent sense of normalcy will continue to be tested in the coming days. On July 22, the Greek Parliament will vote on a second round of measures stipulated by creditors, including reforms on banking regulation and the civil justice system. These reforms are not as controversial as those introduced last week and will likely be approved. The Greek government announced that in the coming weeks it will introduce some politically sensitive reforms, including measures to discourage early retirement and new forms of taxation for farmers. These will lead to more friction within the ruling coalition.

However, these are all "prior actions" that Greece has to approve before the creditors authorize the formal beginning of negotiations for a third bailout. Even if the respective parties sign a memorandum of understanding by mid-August, the agreement will involve permanent negotiations between Athens and its creditors, as well as periodic performance reviews by lenders. This means that there will be permanent sources of friction between Athens and the eurozone, as well as tensions within the Greek government, regardless of who is in charge. The Greek crisis is not over, and Athens' place in the eurozone is not secured, meaning any sense of "normalcy" is only a fleeting mirage.

July 16

This week is proving to be one of Pyrrhic victories for the Greek government. On July 13, Athens reached a deal with its creditors to begin negotiations for a third bailout for the country, only a few days after Greeks voted against austerity in a referendum. Then, early on July 16, the Greek Parliament approved a list of painful reforms, including spending cuts on pensions and higher taxes. The vote was extremely controversial, both inside Parliament and out. Though the austerity measures were approved, 32 lawmakers from the ruling Coalition of the Radical Left party, known commonly as Syriza, voted against the reforms, whole another six party members abstained. This forced Greek Prime Minister Alexis Tsipras to once again depend on support from the opposition. Meanwhile, outside Parliament, Athens saw its most violent protests of the year.

Tsipras is investing significant political capital in measures he has said he does not believe in, but which the creditors consider necessary to keep Greece in the eurozone. He is certainly paying a steep political price for his moves, and the status quo in Athens will change soon — by either a Cabinet reshuffle and/or the announcement of a new government. (A minority administration with Syriza loyalists is possible, since the opposition has said it does not want to enter the government.) With such a fragile political situation, early elections are likely also in the cards.

These politically costly measures are meant to secure a bridge loan from the European Union so that Athens can make debt repayments to the European Central Bank due July 20 and Aug. 20, as well as its overdue obligations to the International Monetary Fund. Later on July 16, the European Union will probably authorize a loan of some 7 billion euros (roughly $7.6 billion) for Greece from the European Financial Stability Mechanism, a fund with contributions from all 28 EU members (including those not in the eurozone) and backed by the EU budget. The United Kingdom initially protested the idea, arguing that London was promised in 2010 that the fund would not be used to bail out eurozone countries. While London has since softened its position and will probably authorize the Greek loan, Brussels' broken promise does not help the cause of those who want to keep the British in the European Union.

Tsipras' controversial decisions are also meant to convince the European Central Bank to continue providing emergency liquidity to Greek banks, which have now been closed for more than two weeks. On July 16, the European Central Bank will meet to discuss whether to increase funding for Greek banks or to continue at current levels. In the meantime, capital controls are likely to remain in place in Greece.

A successful vote in the Greek parliament was a precondition for the rest of the eurozone governments to formally begin negotiations over a third bailout. Several countries also require authorization from their own parliaments before the talks can start. These votes will take place July 16-17 and will be particularly controversial in Finland and Germany, where conservative lawmakers are skeptical of Athens' commitment to reform. (Update: The Finnish parliament authorized the beginning of negotiations with Greece on July 16.)

The irony behind this troubled process is that all these steps are meant only to set the stage for the beginning of new negotiations, and it will be weeks or even months before Athens receives any money from the new bailout program. The bargaining over a third bailout will probably be as traumatic as the negotiations of the past five months, and the European Union will continue to link the disbursement of money to a strict timetable of reforms and external reviews. The Greek Parliament still has to introduce new reforms by July 22 and create a special fund to privatize state-owned companies — two measures that will continue to generate friction in an already fragile government.

In the meantime, the Greek economy will keep deteriorating, with the European Commission admitting today that Greece's gross domestic product could shrink by as much as 4 percent this year. Though Tsipras is investing significant political capital on this process, so is the European Union. The tortuous bargaining process has once again exposed Europe's fault lines and raised new questions about the viability and even the supposed benefits of the European Union, both in Greece and elsewhere on the Continent. 

July 13

After a marathon meeting of the heads of eurozone governments, European Council President Donald Tusk announced July 13 that Greece and its creditors had reached a deal on a bailout worth 86 billion euros (around $95 billion). Between now and July 15, the Greek parliament will have to approve the broad agreement and introduce some of the initial measures, including spending cuts, tax hikes and pension reforms. After that, parliaments from several eurozone countries, including Germany and Finland, will have to ratify the agreement. Only then can formal negotiations over a third bailout begin — a process that could take weeks. In the meantime, Greece may be granted a bridge loan of an unspecified amount. The Eurogroup will start negotiations for a bridging agreement later today.

The goal is to make enough progress before July 20, when Athens has to repay 3.5 billion euros to the European Central Bank. However, a week is a very long time in the Greek crisis, and several things could derail the process. To begin with, the Greek parliament will have to ratify the deal, a process that will be extremely difficult considering that several members of the ruling Coalition of the Radical Left party, commonly known as Syriza, have already opposed the agreement. According to Labor Minister Panos Skourletis, Prime Minister Alexis Tsipras' majority in the parliament is in question. Tsipras will probably receive support from some opposition parties (the centrist To Potami party, for example, already promised to support the government), but his government may not survive the ratification process. A Cabinet reshuffle seems likely in the coming hours, and depending on the intensity of dissent, a complete reconfiguration of the government or early elections cannot be ruled out.

Greece made substantial concessions during the negotiation. In addition to the commitment to pass painful reforms in the next three days, Athens accepted the creation of a fund of 50 billion euros consisting of Greek government assets that will help pay down part of the country's debt and recapitalize its banks. In the coming days, a panel of experts will be asked to decide which assets will be used and how the funds will be monetized — a process that will involve the privatization of state-owned companies. This could prove difficult to digest both for Greek lawmakers and for voters who, only a week ago, rejected austerity in the government-sponsored referendum. The only silver lining for the Greek government is that the Eurogroup accepted that some of the money of the special fund could be used for an investment program to help revitalize the Greek economy. 

July 13 will also be a crucial date for the future of Greek banks, because the ECB is expected to decide on whether to continue providing emergency liquidity to Greek banks. Greek banks depend on ECB support to survive, and today's agreement, even if a fragile one, will probably be enough for the Frankfurt-based institution to continue keeping them afloat. That said, capital controls are unlikely to be lifted any time soon. 

July 10

Almost a week after the Greeks voted against austerity, the government in Athens presented its creditors with a new list of proposals very similar to the plan that was rejected in the referendum. On July 9, Athens asked for a three-year bailout of roughly 53 billion euros (about $59 billion), and the updated document includes proposals for reforms in pensions, taxation, and privatizations, all of which were originally considered red lines by the ruling Coalition of the Radical Left, known as Syriza.

Athens is making these proposals under significant duress. Greece's banks have been closed for two weeks, and Greek banks have come dangerously close to losing access to emergency liquidity assistance from the European Central Bank. The Greek population has so far remained calm, but social unrest may not be avoidable should the Greek banking sector collapse. More important, failure to reach a deal with the creditors by July 20 (when Greece must repay 3.5 billion euros to the European Central Bank) would make a Greek exit from the eurozone almost impossible to avoid. Germany's strategy has worked: Berlin was counting on Athens to become desperate and make last-minute concessions that seemed unlikely only a few weeks ago.

Prime Minister Alexis Tsipras is now facing a very delicate political situation at home. Syriza's more radical members, known as the Left Platform, have criticized the proposals and suggested they may vote against them. Tsipras ensured that the proposals did not include significant cuts in military spending, a sensitive issue for the government's junior coalition partner, the Independent Greeks party. However, the proposals do include higher value-added tax rates for some Greek islands, another sensitive issue for the Independent Greeks.

The Greek parliament is currently debating the proposals, with a vote expected around midnight (Greek time). The package of reforms will be approved, because several opposition parties will support it. The key question is how many lawmakers the government will lose in the process. The Greek government has a majority of 11 seats in parliament, so a rebellion among representatives of Syriza or the Independent Greeks could lead to an ambiguous situation in which the proposals are approved but the Greek administration loses its majority. This could force Tsipras to either lead a minority government, attempt to form a government of national unity or call for early elections.

In the meantime, the creditors are holding meetings of their own to assess Greece's proposals. Several eurozone governments, most notably France, have praised the latest package of proposals. But others, led by Germany, remain skeptical. So far there has not been any significant friction between Paris and Berlin over the Greek crisis. In recent weeks, however, France has pushed more persistently for an agreement. The creditors could release some early assessments of the proposals July 10, but the real assessment will arrive July 11, when the Eurogroup will meet to formally debate the issue.

The important thing to keep in mind is that these are only preliminary procedures, because Greece will not receive a third bailout immediately. The Greek proposals are only "prior actions" that Athens is promising to take to convince the creditors of its commitment to an aid deal. The document that was presented July 9 says that most of the reforms will be implemented between July and October. Controversial issues such as the pension reform and the rise in value-added tax for hotels and islands, for example, would only be introduced by October. This means that even if the Greek government survives the July 10 vote in parliament, the next four months will continue to test Athens' resilience.

While Greece will not receive a third bailout immediately, the Eurogroup meeting will be crucial because a favorable assessment by the creditors would allow the European Central Bank to continue providing emergency liquidity to Greek banks and temporarily defuse the threat of a collapse of the sector. In addition, Athens will need some kind of short-term financial assistance to deal with about 7 billion euros in debt maturities in July and August. The German government might support this idea because Berlin is interested in a step-by-step approach, linking the disbursement of money to economic reforms. This could include around 3.3 billion euros in bond profits Greece is owed by the European Central Bank.

All in all, the silver lining for the Greek government is that, in the coming months, Athens could have the chance to discuss the sustainability of Greece's debt. The Eurogroup entered the negotiations in February ruling out any form of debt relief for Greece, but under pressure from the International Monetary Fund and, to a lesser extent, the United States, it has softened its position. The prospect of some kind of relief (a write-down seems impossible) will make it somewhat easier for some Syriza members to support a deal. However, the Greek government will probably remain in a very fragile situation, as the creditors' supervision of the Greek economy is unlikely to end any time soon.

July 8

On July 8, Greece formally requested a three-year loan of an unspecified amount from the European Stability Mechanism, the European Union's bailout fund. In the request, Greece said it would present a detailed list of economic reforms, including "tax-related measures" and "pension-related measures," by July 9. The document also says Athens wants to "explore" measures to make its debt more sustainable.

The request is meant to be the basis for an agreement on July 12, when the heads of state of the European Union will hold yet another summit to discuss the future of the Mediterranean nation. Greece needs to reach an agreement with its creditors before July 20, when it has to repay 3.5 billion euros (about $3.8 billion) in debt to the European Central Bank. Greek banks are depending on emergency liquidity from the ECB to survive, and defaulting on the country's ECB debt would probably sever that lifeline.

Despite recent moves to secure a deal, an agreement remains elusive. Athens and its creditors are still trapped in deadlock: the Eurogroup wants Athens to introduce reforms before disbursing any money, while the Greek government wants money to be released as fast as possible and prefers reforms to be implemented over time. Some creditors suggest Greece should first sign a short-term deal and, should it implement reforms, receive a third bailout later in the year. However, now that Greece has voted against austerity, Athens probably will not be open to more spending cuts, though its creditors will be pushing for tougher measures in light of Greece's deteriorating economic climate

In addition, debt relief is a point of contention. Athens understands that a debt write-down is out of the question, but it would like to secure at least a promise of longer maturities and lower interest rates. However, German authorities have said Berlin is not even considering the idea of extending Greece's maturities.

Even if the Eurogroup were to approve Greece's plan, parliaments in countries including Germany and Finland would have to ratify it. This would be particularly difficult in Germany, where several lawmakers from the ruling conservative Christian Democratic Union/Christian Social Union parties would probably oppose it. More recently, even members from Germany's center-left Social Democratic Party have hardened their stance on Greece. This could complicate an already tight timeline, since the ratification may not arrive in time to avoid a Greek default with the ECB.

Germany's strategy so far has been to stand firm, counting on the quick deterioration of the social, political and financial situation in Greece to force the government in Athens to make concessions. Should Greece fail to make a deal by July 20, its government would probably have to introduce some kind of parallel currency (most likely in the shape of IOUs or Tax Anticipation Notes at first) to recapitalize banks and pay pensions and salaries in the public sector. While this move may be legal at first (the ECB could tolerate it so long as the Greek government did not give it the status of legal tender), it would be a de facto path toward a Grexit.

July 7

Sixteen of the 18 other eurozone countries are in favor letting Greece leave the currency union, unnamed sources in Brussels said July 7. According to the same report, new Greek Finance Minister Euclid Tsakalotos — who was sworn in late on July 6 — and Greek Prime Minister Alexis Tsipras received backing from the heads of almost all of Greece's parties for its plans to secure a deal on additional bailout funds with Europe. Tsipras will reportedly propose a deal based on the most recent set of bailout proposals, though Athens will also ask for more gradual implementation of certain measures, sources said. The Syriza party seemingly got the outcome it wanted, appearing to put Germany on its back foot — but this is not necessarily the case.

July 6 

Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel agreed July 6 that Greece would present its proposals to a eurozone summit July 7. However, according to the German Finance Ministry, Germany will not consider reducing Greece's debt. 

Greeces referendum rejecting Europe's bailout terms solves nothing, and serious, solid proposals from the Greeks could still produce solid discussions, French Finance Minister Michel Sapin said. Meanwhile, a French government spokesman said that none of the leaders involved in the negotiations with Greece wishes to kick Greece out of the eurozone. European leaders will meet July 7 in Brussels for an emergency summit to discuss the next steps in the Greek economic crisis. The meeting comes on the heels of Greek voters resoundingly rejecting Europe's bailout terms in a referendum. French President Francois Hollande and German Chancellor Angela Merkel will also meet July 6, and the German and French finance ministers will meet with their Polish counterpart in Warsaw. 

In another blow for Athens, Greek Finance Minister Yanis Varoufakis resigned July 6, according to a statement on his website. The move comes shortly after Greek voters resoundingly rejected Europe's bailout terms in a referendum on July 5 — an outcome Varoufakis had supported.

Geopolitical Diary: "The ball is in their court now" has been a recurring statement throughout the Greek crisis — one that now seems particularly appropriate as the tennis tournament in Wimbledon enters its second week. The media turned its head after Greek Prime Minister Alexis Tsipras pulled off a "no" result in the July 5 Greek referendum, the equivalent of a fizzing backhand topspin. Now the crowd is looking at the creditors to see what kind of a return they will be able manage. The "no" option commanded 60 percent of the Greek vote, and the dominant media narrative holds that this is a devastating setback for German Chancellor Angela Merkel. Now Merkel will have to be more obliging to Greece to prevent the country from exiting the eurozone and wrecking her legacy. She cannot be the chancellor who allowed the eurozone to unravel, this story goes. Read the full Geopolitical Diary here: The Ball Is Still in Greece's Court.

July 5

Voting in the Greek referendum is underway, with voter turnout reaching 35 percent by 5 p.m. local time. The referendum will decide whether or not Greeks choose to accept international creditors' proposals for more austerity in exchange for loans needed to avoid default and a banking collapse. Polling stations will close at 7 p.m. and early results of the referendum are expected to be announced at 9 p.m. 

Europe will not "desert" Greece regardless of the outcome of the July 5 referendum and may provide it emergency loans, European Parliament President Martin Schulz said. But he warned the assistance would not be a lasting solution. Schulz also told German radio that Greece would have to introduce another currency if the no vote wins. Greeks are voting in a referendum on whether to support the terms of the country's potential bailout deal with its international creditors. A spokesman for the ruling Syriza party said the result of the opinion polls would enable the government to move ahead quickly to reach a deal with creditors. Italian Foreign Minister Paolo Gentiloni said that now is a right time to start trying for an agreement again.

Analysis: The Greeks have voted no. After a week of speculation, rumors, threats, and pro- and anti-agreement demonstrations, early results show that 61 percent of the Greeks voted against the terms that the country's creditors requested in exchange for additional funding. It is a victory for the ruling Syriza party, which campaigned for the no vote, but one that will probably come at a high price for Greece. While Prime Minister Alexis Tsipras said he would return to the negotiation table to reach an agreement with the creditors, most governments in the eurozone have said they would not offer better conditions for Athens. More important, the referendum's result will create even more uncertainty about the future of the country's banking sector. Read the full analysis here: What 'No' Means After Greece's Referendum.

Greek opposition leader Antonis Samaras resigned July 5 after 61 percent of Greeks voted no in the Greek referendum. Meanwhile, German Chancellor Angela Merkel and French President Francois Hollande are reportedly calling for a special summit July 7 to discuss the Greece crisis. Senior French leaders, including Hollande, have also called for talks to resume immediately with Greece. Eurozone finance ministers are due to meet July 6 to discuss the referendum as well.

July 3

Greece's prime minister urged voters to reject what he called "blackmail" and vote "No" when they cast their ballots in a referendum on Greece's bailout on July 5. In a television address, Greek Prime Minister Alexis Tsipras said Greece's eurozone membership is not at stake, though EU leaders have said a "No" vote could lead to Greece's exit from the monetary bloc. Moreover, EU politicians have staunchly denied Greece's claims that a "No" vote on the referendum would strengthen Athens' position in bailout negotiations. Even if Greece and its creditors reach an agreement, the referendum battle has made Greece's eurozone membership more precarious.

Elsewhere, Greece's Council of State court rejected an appeal two Greek citizens made against the July 5 referendum on a bailout package. The court's decision means the vote will be held as scheduled. The referendum could have momentous political repercussions for the European Union.

July 2

The Syriza-led Greek government will accept the proposals made June 25 by Greece's creditors if the "yes" vote wins in country's upcoming referendum on the deal, Greek Finance Minister Yanis Varoufakis said July 2. Syriza is campaigning for a "no" vote in order to restart negotiations and reach an agreement that includes debt restructuring. Varoufakis said he would resign if the "yes" vote wins and that he would rather cut off his arm than sign another "extend and pretend" agreement with Greece's creditors. However, Greek Prime Minister Alexis Tsipras would sign the deal, Varoufakis said. If the "no" vote wins, he said, a deal could be imminent, as the government has proven willing to cross Syriza's red lines for the sake of Greece and the rest of Europe. The Syriza government has delivered two conflicting messages — one to its creditors and one to the Greek public.

Geopolitical Diary: Athens' decision to hold a referendum on austerity July 5 and the creditors' strategy of delaying the continuation of negotiations until after the vote have only exacerbated the Greek crisis. Greek Prime Minister Alexis Tsipras suggested he could resign if people vote in favor of the current agreement, but a vote against the deal could also bring about the collapse of the government and seriously damage the Greek banking sector. Regardless of the outcome of the vote, a Grexit remains possible and could have serious geopolitical consequences because of Greece's position in the Eastern Mediterranean. Should Greece leave the common currency, both the European Union and the United States will make substantial efforts to keep Athens in the European Union and NATO. Read the full Geopolitical Diary here: Referendum Battle Aggravates the Greek Crisis.

July 1

Greek Prime Minister Alexis Tsipras has delivered two conflicting messages in the past 24 hours. One was directed at Greece's creditors and the other at the people of Greece. First, Tsipras sent a letter to lenders promising dramatic concessions in exchange for various demands, including some debt relief. Later in the day, however, he delivered a speech to the Greek people confirming that the July 5 referendum would go ahead as planned and asking them to unite and vote "no" to the unreasonable demands of Greece's creditors.

Tsipras is in a tight spot — the walls are closing in on either side and he is making alternating efforts to push them back. From one direction, Greece's creditors are applying economic pressure in order to cause massive problems within the country. On the other, Tsipras has a referendum approaching that might very well bring about the collapse of his government.

The freeze on the European Central Bank's liquidity assistance and the ensuing bank closures have left Greece's elderly population lining up for hours in the streets to receive a fraction of their previous pensions. Meanwhile, Greek businesses struggle to keep their doors open, and shop shelves are expected to empty as early as next week. Although the atmosphere is still calm in the streets, economic problems are weighing heavily on Greeks. In his speech, Tsipras promised the Greek public that the current state of affairs was only temporary. With this message, he is trying to send positive messages to the creditors to prevent them from implementing more measures that might ratchet up even more popular pressure (among the lenders, the ECB is the most able to implement such measures). However, the timing of Tsipras' requests — asking for an extension of the existing bailout too late for it to be ratified — and the fact they were not complete capitulations suggests that he did not expect them to be granted. His tactic has the added bonus of painting Greece's creditors as unreasonable ahead of the referendum.

If the public votes "yes" on July 5, as Greek businesses are reportedly urging their employees to do, it will be difficult for the current government to remain in power because the party, the Coalition of the Radical Left, or Syriza, has campaigned strongly for "no." To remain in power and to keep the Syriza dream of a new deal alive, Tsipras is delivering one message to one side and another to the other. This might have worked in the days of galloping messengers and palace decrees, but in the modern age of instant media and global news, the disconnect is clear to both sides. This has eroded the government's credibility. It is Stratfor's view that this fragile balance cannot be maintained, and no matter the result of the July 5 referendum the government could collapse soon after — if not before. No matter how hard Tsipras pushes back at the walls, it seems as if they will soon close in on him.

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