Pensioners wait outside a closed National Bank of Greece SA bank branch in Athens, Greece, on Thursday, July 2, 2015. Greece votes on a referendum on Sunday with the future of the euro in doubt.
Photograph by Yorgos Karahalis — Bloomberg via Getty Images
By Geoffrey Smith
July 2, 2015

Public opinion appears to be swinging against the Greek government as the country prepares for the fateful vote on its economic future Sunday.

With the country’s creditors refusing to respond to Prime Minister Alexis Tsipras’ overtures in the wake of Greece’s default to the International Monetary Fund Tuesday, there appears to be a spreading acceptance that the vote will (as the creditors have said) be a vote on whether to stay in the Eurozone or leave it, rather than just another tactic to strengthen Greece’s negotiating position, as Tsipras has presented it.

According to the latest opinion poll, there is now a slim majority in favor of accepting the creditors’ latest proposals, which would impose more austerity and reforms on the battered country, and which has only nebulous promises of debt relief in the future.

That clashes with a poll published yesterday that had still given the “No” camp a nine-point lead–albeit that had shrunk drastically from over 15 points before the weekend, when the country imposed capital controls and shut its banks for a week in an effort to stem deposit flight. With a margin of error of over three percentage points, most commentators still see it as too close to call.

Overnight, the country’s maverick Finance Minister Yanis Varoufakis dropped the clearest hint yet that the government would resign if the people vote against its recommendation to vote ‘No’ on Sunday, telling an Australian radio station ABC: “We may very well do that.” Thursday morning in Europe, he told Bloomberg TV that he would personally “rather cut my arm off” than sign any deal without debt relief.

 

In the meantime, the economic situation continues to unravel. The European Central Bank Wednesday did not, as some had feared, tighten the noose around the Greek banking system’s neck, but nor did it loosen it, leaving the conditions for its emergency loans to Greece’s banks unchanged. But with reports of cash euros running low at some banks, it’s clear that there is no chance of the banks re-opening without some kind of deal with the creditors.

Support for the ‘No’ camp is due in large part to the perception that things couldn’t possibly get any worse: the economy has shrunk by over 25% in five years, and over a quarter of Greeks are without a job. But Standard & Poor’s warned Thursday that gross domestic product could shrink by another 20% over the next four years if Greece leaves the euro, leading to even higher unemployment and wiping out savings while still leaving public debt at a relatively high level of 105% of GDP.

 

 

Yes, it can get even worse, S&P tells Greece.

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Even with a restructuring, Greece's debt/GDP ratio still stays high. Source: S&P

By contrast, the ratings agency reckons, the impact on the Eurozone in general would be limited because the European Central Bank and member states would deploy huge financial firepower to stop ‘contagion.’

The ECB gave an indication of what could be in store Thursday morning, by adding corporate bonds to the lists of assets that it could buy through its ‘quantitative easing’ program. That means that an even broader segment of the Eurozone’s financial markets would receive direct support from the ECB in the event of a panic.

One thing is clear: even if the country votes to stay in the Eurozone on Sunday, the uproar and the negative publicity the crisis is generating is already killing the country’s key tourist sector. Andreas Andreadis, head of the Greek Tourism Confederation SETE, told the newspaper Kathimerini that 50,000 bookings a day are being lost due to the chaos. As always, the problem relates not just to foreign tourists cancelling their vacation plans, but the local population too.

 

 

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