It won't be over Sunday.

Photographer: Louisa Gouliamaki/AFP/Getty Images

Greek Referendum Myths

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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What if the expensive referendum on Sunday ends up being largely irrelevant to the issues that have caused such ugly divisions between Greece and Europe?

 That is the unfortunate possibility the country and its creditors may have to acknowledge after the vote, which will do nothing to address a situation that has been made worse by all parties involved.

QuickTake Greece's Fiscal Odyssey

The referendum's costs go well beyond the immediate expense of organizing a national vote so quickly. The government's estimate is 20 million euros ($22.2 million); the opposition says it could be 120 million euros. In either case, it will be a substantial outlay for Greece, which is having difficulties paying pensioners and suppliers, and is already in arrears on its debt obligations.

The price for Greece also includes the further widening of the divide within its society – a polarization that won’t be easy to heal. And the referendum will add fuel to the multidimensional blame game -- between Greece and its creditors, as well as among the creditors themselves (especially the International Monetary Fund and some European governments and institutions) -- that will undermine future efforts to put Greece back on a path of growth and prosperity.

These costs would be worth bearing if the referendum were to provide a constructive reset of the very messy Greek crisis, which has caused huge human suffering. Unfortunately, this is increasingly unlikely to be the case. While the country's citizens may think the point of the referendum is to choose between different outcomes, the reality is much more complicated.

The major parties involved in the vote on whether Greece should approve the terms of its creditors seem to have differing understandings of the meaning of  the two possible choices for the country and Europe.

For the government, a “No” would be interpreted as a renewed and unambiguous mandate to seek more equitable bailout terms from creditors, while maintaining Greece's status as a full member of the euro zone. Specifically, it would be a green light to insist on deep debt forgiveness, a lot less austerity and reforms with a much more local focus -- measures seen as necessary to restoring growth and lowering the horrid unemployment rate. But for many of the government’s partners in Europe, a “No” would simply be a vote for the country to exit the single currency.

A victory for the “Yes” camp would also have complex implications. Within Greece, it would be seen by many as a rejection of Prime Minister Alexis Tsipras’s government that would warrant its immediate resignation. Yet forming the next government in the midst of economic chaos and societal polarization would be far from straightforward; and the process certainly wouldn't be conducive to the quick formulation and implementation of comprehensive economic reforms.

Although creditors would welcome a “Yes” vote, at least on the surface, it isn't clear they would have the stomach to deliver on the obligations it would entail.

As the IMF’s debt sustainability analysis demonstrated, creditors would need to urgently support Greek reform efforts with about 50 billion euros of new financing, together with “deep debt operations” that would, most likely, involve outright debt forgiveness. Both are likely to be anathema to some European governments. Moreover, as acknowledged by the IMF, these estimates need to be updated to reflect recent developments that "are likely to have a significant adverse and financial impact.”

Reflecting historical miscalculations by all sides, as well as a mutual loss of trust, it is becoming increasingly difficult to divert Greece and Europe from a path that leads to a disorderly Grexit. The referendum would certainly add to the narratives and fuel the blame game. Nonetheless, the vote appears increasingly likely to have only a partial influence on Greece’s prospects. Bad, and rapidly deteriorating, conditions on the ground are slipping from the control of all involved.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mohamed A. El-Erian at

To contact the editor on this story:
Max Berley at