While Greeks voted NO, Tsipras will promote the YES voters views

Greeks rejected a proposed deal that their government had put to a referendum rather than accept. The same government is now agreeing to negotiate an agreement that will bring even more austerity and harsher conditions.

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While over 60 percent of Greeks voted NO to acceptance of a plan proposed by creditors that would have continued and even increased austerity measures imposed as part of the previous bailout loan, the NO voters have in effect lost. The Greek government is returning to negotiate but has already erased the two red lines remaining in their former negotiating stance and acceded to the demands of creditors that the Finance Minister Yanis Varoufakis resign.

There is one possible bright spot in negotiations — the issue of a partial debt write-off is being pushed by the IMF, although this would come at the cost of further cost reductions such as pension cuts. Christine Lagarde, head of the IM,F said Greece needs to continue cost-cutting reforms: "The other leg is debt restructuring, which we believe is needed in the particular case of Greece for it to have debt sustainability. That analysis has not changed. It well may be that numbers may have to be revisited but our analysis has not changed."

It is not clear if other creditors will agree to this. It will be politically unpopular in many EU countries to have debt owing to their treasuries by Greece to be written down. Some countries may be even pressing for creditors to force a Grexit on Greece rather than providing Greece any more loans at all. Yet Greek negotiators are still taking the position that they will do whatever is necessary to reach a deal. Immediately after the NO vote this was evident.

The finance minister, Yanis Varoufakis, had announced that if the YES vote was successful he would resign. The NO vote triumphed by a large margin showing that the majority of Greeks supported Varoufakis' position that Greece simply could not be forced to suffer even more austerity. Instead of working with others to put pressure on creditors for a better deal, what does he do? He resigns. Even in his resignation statement, it is clear that his resignation is acceding to creditors' demands:Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum.

So the first thing that Tsipras does with his new mandate is give in to a suggestion that Varoufakis, who sometimes annoys officials on the other side, must resign.

The irony to this is that Varoufakis has not been meeting with the creditor groups since late April. The new finance minister Euclid Taskalatos has been in charge since then and Varoufakis only remained behind the scenes. The fellow that was involved until the very last and rejected the final offer along with Tsipras was Taskalatos. Nevertheless even though the move is mostly symbolic, the Greek government must show its willingness to accede to creditor demands, a position that the Greek populace had just rejected.

Instead of keeping its red lines on pension reform and taxes, a letter from the Greek government to the European Stability Mechanism is requesting a three-year loan explicitly promises that it will meet demands by creditors for reforms in those key areas: The Greek government promised on Wednesday it would start pension and tax reforms next week, as demanded by creditors, in return for a three-year loan to drag its financial system back from the brink of collapse.The complete letter can be found here. It was signed by Euclid Tsakalotos, the new finance minister.

The letter does say the Greek government will implement a set of measures related to tax reform and pension related measures. However, it gives no details at all. We should know tomorrow if the measures measure up to creditor demands . They have not in the past. These measures are to be implemented as early as next week. At least the letter promises the Greek government must produce specific reforms by tomorrow: The Greek government will on Thursday 9 July at the latest set out in detail its proposals for a comprehensive and specific reform agenda for assessment by the three Institutions to be presented to the Euro Group.

The letter is a masterful construction that brings up the issue of shaving down debt while promising to meet all its financial obligations:As part of broader discussions to be held, Greece welcomes an opportunity to explore potential measures to be taken so that its official sector related debt becomes both sustainable and viable over the long term.Greece is committed to honor its financial obligations to all of its creditors in a full and timely manner.

We reiterate the Greece's commitment to remain a member of the Eurozone and to respect the rules and regulations as a member state.There is not even the slightest hint of any threat to leave the euro zone should the government be required to erase their red lines and also sell out their own citizens.

There are no doubt splits between creditor groups. It may very well be that a majority of creditors have already decided that there will be no more loans and that their own Plan B for a Grexit should start to unfold. This at least would be more in keeping with the NO vote even though it will impose even more suffering on the Greeks over the shorter term.

Economist Paul Krugman applauds decision to hold referendum on bailout deal

Athens - Paul Krugman, the American liberal economist, has been consistently critical of the austerity program demanded by the Troika as a condition of releasing the final funds of the Greek bailout that expires on June 30.

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Krugman in his New York Times blog notes that until now every Greek government has given in to the demands of the Troika no matter what they had said during the election. Krugman refuses to use the term "institutions" to refer to the European Commission, European Central Bank(ECB) and the International Monetary Fund(IMF) or Troika. After the Greek government refused to meet with the Troika after being elected, they were rebranded as "institutions" presenting the radical Syriza government with at least a linguistic victory. Krugman's refusal to go along with this game is refreshing.

The continuous caving in to Troika demands has damaged the credibility of centre-left parties and no doubt is a factor in the success of Syriza, a more radical leftist umbrella group. Krugman suggests the Troika thought that the Syriza government would abandon most of its anti-austerity program or the government might fall. The Greek government did abandon most of its austerity program and almost all of its red lines. They have followed the usual pattern. However, the Troika has pressed for more and abandonment of any red lines. It is as if they needed to humiliate the party to show that a radical leftist party is helpless. They must be taught to respect their superiors.

The call for the referendum should have been a wakeup call for the Troika. It was not but an occasion for the usual moralistic blather about Tsipras being irresponsible. Krugman thinks that Tsipras did the right thing. Krugman has been arguing that the Troika has been doing the wrong things all along. In fact, he claimsthat if Grexit happens, it will be because the creditors, especially the IMF wanted it to happen. This may be correct but there are certainly risks for the eurozone and Troika if there is a Greek exit (Grexit) from the zone. If Greece defaults on debt payment the ECB and IMF will suffer huge loan losses. There is also the possibility of contagion. If over the longer term Greece recovers and grows, this would encourage resistance to austerity and the rule of the Troika in other countries. The Troika must hope that somehow they will persevere without yielding much if anything even at this late stage.

Krugman approves the referendum for two main reasons. First, a referendum will give the Greek government democratic legitimacy in any future negotiations. Most Greeks are still very much for staying in the zone it seems even if their anti-austerity demands are not meant. However, given the recent increased demands and the fact that Syriza, and no doubt other parties such as the Communists, will campaign for a rejection of the Troika proposals there is no guarantee it will pass. Even if it does pass and a deal is then negotiated it would not be a long term solution to the Greek problem but kicking the can down the road again until another bailout is needed. Meanwhile social discontent might rise to the boiling point. Krugman claims that democracy still matters in Europe. Of course it does not when it comes to the power of the Troika over individual countries. The referendum is the exception not the rule. Krugman's second reason for approving the referendum is that it will solve the dilemma that the governing party Syriza faces. Syriza faces citizens who voted for anti-austerity measures but are not willing to leave the euro zone. Syriza has achieved very little if anything in the way of relief from austerity policies and so it is now quite fitting that they should ask Greeks whether they want to bow to the Troika demands and accept their offer or to turn it down. This will provide Tsipras a mandate to cave as others have done or to develop a plan B for default and possible exit from the euro zone.

Many critics have argued that a plan B should have been planned long ago when it became obvious the Troika was giving little or nothing to satisfy demands for relief from austerity. The negotiations were filled with bluster, useless rhetoric, and false optimism that a deal was close. Having the referendum at this late date creates huge problems for Greeks that would not have been as severe were it held much earlier, say on the earlier proposals of the Troika. If held then there would not have been a huge payment coming due as that to the IMF the end of June, days before the referendum. The move to hold a referendum and the lack of a plan B show that Syriza is guilty of poor planning or perhaps no planning at all. Now Greeks face a bank holiday on Monday and capital controls. In the appended video from January of this year, Krugman was even then predicting a Greek default on its debt well before the election of Syriza.