Prime Minister Alexis Tsipras of Greece caused a major uproar on Saturday when he announced a national referendum on the package of austerity reforms that the country’s creditors are demanding. The referendum, which is scheduled for next Sunday, is now a source of deep uncertainty, with Greeks lining up outside of ATMs to withdraw whatever euros they can, while the whole country is teetering on the brink of financial free-fall. Leaders across the globe, including President Obama, have expressed deep concern about the possibility of Greece dropping out of the 19-member eurozone, and already the markets have plummeted as a response.
Many believe that the Greeks have grown so wary of spending cuts and tax increases, which successive governments have adopted in return for a series of bailouts, that they would be bound to reject any kind of new austerity package, no matter its merit. Mr. Tsipras seemed to align himself with this view when he called on his country to say a “big ‘no’ to the ultimatum.” Tens of thousands of Greeks swarmed the streets of Athens on Monday night to voice their support for this resolute stand.
Yet to reject the proposed deal is bound to have momentous implications, first and foremost Greece’s likely exit from the eurozone. Others thus maintain that Greeks would be open to a deal — even one that would include painful provisions — but that they are deeply apprehensive about specific aspects of the reforms and spending cuts that the country’s creditors are calling for. Mr. Tsipras has announced that he would honor the result of the referendum “whatever it is.”
How to know which of these views more accurately reflects Greece’s position? The answer may determine whether the impending crisis can be averted.
Last month we and two colleagues, Kirk C. Bansak of Stanford University and Michael M. Bechtel of the University of St. Gallen in Switzerland, surveyed a national sample of 2,000 Greek voters. We showed them a series of possible austerity packages and asked them if they would vote in favor of the package if it were put to a referendum. Each respondent was presented with a slightly different version of tax increases and spending cuts, to gauge whether there were subtle conclusions about Greek public opinion that have until now gone unnoticed. The findings are surprising and indicative of how this referendum could shape up.
Despite all the talk of a sweeping “big ‘no”’ to austerity, we found that only a fifth of the public was “fundamentally opposed” to it and would vote down any proposal that we put forth to a vote. These voters are not demographically or socioeconomically distinctive from the rest, but they disproportionately identify with the far left. Less surprising, perhaps, only a very small number of voters said they were in favor of a deal with Europe no matter what and were willing to back any package that would be put on the table.
The battle on passing a referendum, therefore, will depend on the rest of the electorate — the roughly three of every four voters who are open to at least some of the packages under proposal. Passing the referendum would require just over 60 percent of these votes, a tough but not insurmountable outcome.
Less than half of the austerity scenarios with which the voters were presented gained such a majority, suggesting that there are some austerity conditions that are just too hard for the general public to stomach. These primarily included cuts in pensions and in education spending. For example, adding a 15 percent pension cut to an austerity proposal would cause public support to drop by about 7 percentage points (and a 35 percent pension cut would shrink public support by almost 15 percentage points).
Sensitive to this concern, the government’s proposal has avoided direct cuts to pensions, and has instead offered to place limits on early retirement and to raise employers’ social security contributions. And yet the austerity package demanded by Greece’s main creditors — the European Commission, the European Central Bank and particularly the International Monetary Fund — includes substantial demands for new pension cuts, all but guaranteeing that such a proposal will face fierce opposition in a referendum.
Contrary to widespread perceptions, though, we found that Greeks are open to some spending cuts — even substantial ones — such as laying off public sector workers and reducing the country’s defense spending. Not only that, but such measures could potentially increase support for an austerity package, suggesting that the public has accepted the creditors’ warnings about Greece’s massive deficit.
Even when it comes to tax increases — typically seen as a political taboo — opposition is not uniform. We found, for example, that Greeks are strongly opposed to increases in the marginal income tax, but are much more open to increases in both the sales tax and corporate tax. Perhaps heeding this sentiment, the most recent Greek proposal focused on increases in those two taxes, including a substantial increase in the value-added (consumption) tax, a large increase in corporate tax rates and a one-off levy on corporate profits above 500 million euros. However, the Eurogroup — which includes the 19 finance ministers of the eurozone countries — has rejected the proposed increase in corporate taxes, saying it would hurt business and hamper growth.
Greeks do not unconditionally reject austerity measures. Rather, a majority of the Greek public appears willing to vote in favor of a package that would include both spending cuts and painful tax increases, as long some areas — pensions, education and marginal income tax rates — are largely untouched.
If the Eurogroup is serious about reaching a deal with Greece that not only addresses the objective of deficit reduction but would also be politically viable, it should take these findings to heart. “Europe only succeeds if we work together,” Chancellor Angela Merkel once said. Austerity is a bitter pill, but by knowing where to push and where to hold off, it just might be one the Greeks would be willing to swallow.
Jens Hainmueller is an associate professor of political science at Stanford University. Yotam Margalit is an associate professor of political science at Tel Aviv University and Columbia University.