EU to Greece: No More Solidarity If You Vote No

On the eve of perhaps the most significant vote in the Greek parliament since the return of democracy to the country in 1974, the European Commission has warned Greek deputies that if they do not vote the right way, then “everything changes” as to whether “EU solidarity continues”.

“The only way to avoid immediate default is for parliament to endorse the revised economic programme.”

Olli Rehn

The Greek parliament opened debate on Tuesday on a draconian package of public spending cuts, structural reforms and a massive €50 billion sell-off of state assets imposed by international lenders. The Greek parliament is due to vote on the mid-term package on Wednesday and hold a second vote on its implementation on Thursday.

In a stern public statement issued the same day, EU economics commissioner Olli Rehn said there are only two options for the country: pass the mid-term package or default, the EUobserver.com reports.

“The only way to avoid immediate default is for parliament to endorse the revised economic programme,” he writes in a communique to reporters, read  by his spokesman, Amadeu Altafaj-Tardio.

“To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default.”

In recent weeks, a range of commentators, including mainstream and heterodox economists have recommended a range of other paths out of the crisis than those on the table.

The EU executive however dismissed such ideas as unrealistic.

“According to press reports over the last hours, there seems to be an illusion that there will be other plans on our desk,” Altafaj-Tardio says.

“This should be clear in all journalists, politicians and markets’ minds.”

Pressed whether the commissioner’s words meant that if the vote is defeated, Greece will be allowed to go bankrupt, the spokesman said: “If Greece does everything to take the objectives set a year ago, then EU solidarity continues. If not, then of course everything changes.”

He refuse to answer whether a country can default and still be a member of the eurozone.

“We are not putting ourselves in a scenario without Greece at this point in time,” he says.

However, a euro zone source close to talks on the subject confirmed toEUobserver that there are indeed “half-formed” ideas about emergency measures to take in the event that the Greek parliament votes down the measures.

“It would be extremely irresponsible if there were no Plan B. There have been discussions on what to do, a contingency plan in the event that Greece doesn’t vote the right way,” the source says.

Ideas include a show of public support, possibly with the European Financial Stability Fund directly purchasing Greek government debt – an option that has until now been forbidden.

One idea would involve allowing Greece to miss a payment and the EFSF then swooping in and buying up debt at a significantly discounted rate, but with very strict conditions, according to the EUobserver.com.

Another possibility is that Greece could return to the private sector for funding, although such a move would entail borrowing at acutely high rates.

A market analyst speaking to this website also confirmed that in theory, there is nothing preventing Athens from selling debt to private creditors, at least for a short period.

“In the event of a failed vote, Greece could still make the repayments due in July and August by borrowing in the short-term money market, albeit at a very steep interest rate,” Sony Kapoor, the director of international economic think-tank Re-Define, says.

“This would buy two more months of negotiation time.”

In the same statement, the commissioner again told opposition forces to drop their resistance to the mid-term package and forge “the necessary political consensus”.

Read the full post at EUobserver.com.

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