European Central Bank

In defiance of most of its media, its former leaders, and the unanimous urging of Europe’s leaders, Greece has voted “Oxi” (pronounced “Ochi”), or “No”, in a decisive referendum on the proposed financial bailout.

Legally, the referendum carries almost no weight. But, politically, it may have changed the face of Europe.

What next? This is what we know – and what we don’t.

This is a triumph for Greece’s anti-austerity party Syriza

The referendum result allows Greece’s government to draw a line beyond which it simply cannot be pushed by the rest of Europe, and by lenders such as the European Central Bank and the International Monetary Fund.

This gives it power in Brussels. Syriza still cannot force Europe to offer a better deal, but Europe now knows: if there is not a better deal, there will be no deal.

Most commentators thought Syriza had shot itself in the foot by calling a referendum on the bailout package, then pushing hard for a “No”.

Its opponents claimed that “No” would mean leaving the euro; it would mean isolation, inflation, more unemployment, more recession.

A strong “Yes” vote would have sent the message that the voters believed this interpretation. It would have left Syriza practically spent as a political force: discredited and rejected.

But most “No” voters, according to polls, accepted Syriza’s version of the narrative: this was not a referendum on the euro.

It was a determination to return to Brussels and demand that, if there was to be a financial rescue, it would be on (or closer to) Greece’s terms.

Their message to Brussels was clear: find another way. Or we’ll just have to try it ourselves.

This is a disaster for Syriza’s opponents

Inside and outside Greece, many politicians and institutional leaders were dismissive of Syriza. They saw Greece’s government as amateur radicals, unprepared for the big stage. They bet the referendum would prove their undoing. They particularly wanted to see the back of Yanis Varoufakis, the arrogant, confrontational Finance Minister.

Their bluff has been called.

Inside Greece, the conservative former Greek prime minister Antonis Samaras has already fallen on his sword, stepping down as leader of the New Democracy party.

There is no “government-in-waiting” for those who hoped Syriza would be a short interregnum between centrist leaders.

Outside Greece, those who insisted that “No” would mean the end of efforts to prop up Greece’s economy now face a test: did they mean it?

It is still entirely within Europe’s power to release the funds promised to Greece, under more generous terms.

The negotiations over a rescue package will resume and so will the grandstanding on both sides.

But this time Syriza can play a stronger hand.

The chance of a “Grexit” is now much higher

Greece’s banks are on the brink of collapse, as money flees the country for safer harbours. The vote doesn’t change that.

There is no rescue deal, so there is no guarantee the European Central Bank will release funds to prop up the banks.

Until it does so, Greece has a crippling shortage of cash, which is needed to buy imports such as food and medicine, all of which makes the prospect of a Greek exit from the euro (or Grexit) more likely.

Sooner or later, without more euros, the country will have to create an alternative to the euro. It could be called a government IOU, or it could be called a drachma. Practically, the name doesn’t matter.

Without more cash from overseas, the Greek currency will have to change.

But is there really a possibility of a “Grexit?” Not likely! Membership of the European Union has often been likened to The Eagles “Hotel California”……”You can check-out any time you like, but you can never leave”.

The chance of debt relief is now much higher

The debate over the referendum, within and outside Greece, was partly over whether the current strategy for turning the country’s economy around was truly working.

But new IMF projections, released this week, could be translated as “tell ’em they’re dreaming”.

Very few economists convincingly argue that Greece can cover its debts, now or in the future.

And it is clear that, even if a more extreme austerity might put Greece on track for a long-term recovery without debt relief, its citizens simply will not accept that plan. The Greeks still want to retire at 50 with a full pension, have reasonable levels of GST/VAT, cheap utilities, but still fail to appreciate where the money is coming from to pay for this lifestyle. Greece has “little” in terms of heavy manufacturing industries; they don’t make cars or ships. They don’t have heavy steel or aluminium smelters. They rely on tourism as a major source of income, but outside of the EU, this tourism may become too costly.

This is what Syriza was trying to argue in Brussels, without success. It can now argue the case more forcefully, with fresh evidence. Debt relief is firmly on the table.

Nationalism is still on the rise

Anti-European voices are already claiming this as the moment the European project failed.

It’s too simplistic an interpretation. Many of the “No” voters in Greece still want to stay in Europe, and in the euro.

But, if this referendum wins debt relief, or a kinder rescue package for Greece, then countries such as Spain, Italy and Portugal will be asking: “What about us?”

The political calculus is clear: vote for radical populists, get a better deal. The next few years could see European federalism dealt a fatal blow.

However, this is just one interpretation. There is an alternative argument: that the case of Greece proves that the only way the euro can work is with tighter financial integration.

There are some in Greece – and elsewhere – who hope Europe will change fundamentally. There will be a “mutualisation” of debt, rather than continued rescue packages. The “ever closer union” will be accelerated rather than stalled.

Greece is going to face another tough week

Until Europe sorts out its response to the referendum, or the European Central Bank reverses its current policy, Greece’s long bank holiday will almost certainly continue.

ATM withdrawal limits are likely to fall again. The first reports of food shortages have already begun, they are likely to worsen. ERmpty shelves are seen in supermarkets. Imported medicines will be harder to come by for GPs and hospitals.

Many businesses have been paralysed by the restrictions on sending money overseas (ie, to buy imported goods), and by the reluctance of Greeks to spend the cash that is so hard to come by.

Tourists will think twice before going on holiday in a country where food and cash are reportedly in short supply. Greece is rapidly becoming a third world country, rather than the birthplace of democracy and civilisation.

Everyone is waiting to find out: what happens next.