Eurozone in tailspin after Greece votes ‘No’ to austerity

July 6, 2015 5:58 am
Greece is teetering on the brink of financial collapse. If it doesn't receive cash and loans soon from European institutions, it could still be forced to resort to government IOUs or a return to drachmas to keep its economy running © AFP
Greece is teetering on the brink of financial collapse. If it doesn’t receive cash and loans soon from European institutions, it could still be forced to resort to government IOUs or a return to drachmas to keep its economy running © AFP

, ATHENS, Jul 6 – European leaders were on Monday scrambling for a response to a resounding “No” from Greek voters in a referendum on austerity which could send the country crashing out of the eurozone.

German Chancellor Angela Merkel was to meet with French leader Francois Hollande in Paris after Greece overwhelmingly rejected international creditors’ tough bailout terms Sunday.

The pair spoke by telephone late Sunday, declaring the decision must “be respected” and calling for an emergency eurozone summit which European Union president Donald Tusk said would be held on Tuesday.

A flurry of other meetings will also be held Monday as European leaders sized up the implications of the vote, a victory for Greece’s radical left-wing Prime Minister Alexis Tsipras, who insisted it did not mean a “rupture” with Europe.

With the ramifications still unclear and some analysts putting the chances of a “Grexit” at “very high”, European Commission head Jean-Claude Juncker was to hold a teleconference on Monday morning with European Central Bank chief Mario Draghi, Tusk and Eurogroup head Jeroen Dijsselbloem.

Meanwhile German and French finance ministers were set for talks beginning in Warsaw at 0800 GMT, while the Euro Working Group of top treasury officials will meet in Brussels.

– ‘Torn down the bridges’ –

European leaders had reacted with a mix of dismay and caution to the figures released by the Greek interior ministry early Monday showing the final tally in the referendum at 61.31 percent “No” and 38.69 percent “Yes”, with turnout at 62.5 percent.

Tsipras has “torn down the bridges” between Greece and Europe, Merkel’s deputy chancellor, German Economy Minister Sigmar Gabriel, told the Tagesspiegel newspaper.

Despite the Greek premier’s assertions, new bailout negotiations now were “difficult to imagine”, he said.

Dijsselbloem called the Greek “No” result “very regrettable for the future of Greece”.

Britain vowed it would do “whatever is necessary” to protect its own economic security in light of the vote, with a Downing Street spokesman saying Prime Minister David Cameron would chair a meeting Monday to review contingency plans already in place.

In Asian trade, the single currency held up against the dollar, after dropping in the immediate wake of the vote. It was at $1.1044 in Tokyo trade, ticking up from $1.0963 soon after early results of the bailout reforms vote were out.

Shinya Harui, currency analyst at Nomura Securities in Tokyo, said the common currency was holding up as investors “assess the spill-over risks in case of a Greek exit from the eurozone”, adding: “I personally think the chance (of the Greek exit) is very high, at around 70-80 percent.”

Regional bourses sagged in the aftermath of the vote, led by Hong Kong and Tokyo which were down 3.17 percent and 1.58 percent respectively by lunchtime Monday as investors retreated while they watch Greece’s creditors plan their next move.

– No ‘rupture’ –

In a televised address after the referendum, Tsipras insisted the vote did not mean a break with Europe. He has emphasised that euro membership is meant to be “irreversible”, with no legal avenue to boot a country out.

“This is not an mandate of rupture with Europe, but a mandate that bolsters our negotiating strength to achieve a viable deal,” he said.

Tsipras said the creditors — the ECB, the EC and the International Monetary Fund (IMF) — would now finally have to talk about restructuring the massive, 240-billion-euro ($267 billion) debt Greece owes them.

“This time, the debt will be on the negotiating table,” he said.

Thousands of people in Athens gathered to celebrate the “No” vote Sunday night, punching the air, kissing and cheering.

“Spain, and then Portugal, should follow this path. We’re for a Europe of the people,” said Giorgos, 25, brushing off concerns the result could see the debt-laden country plunge further into the financial mire.But the mood of jubilation was not shared by all “No” voters, with some saying they had been confronted with an impossible choice.

“A ‘No’ victory doesn’t mean there’s any more hope for Greece than before,” said Nika Spenzes, 33 and unemployed.

Even “Yes” voters were ambivalent about their camp’s apparent defeat.

Paris, a 41-year-old dentist, said she was resigned rather than sad because, with the dire state of Greece’s finances and Tsipras in power, there was “no real hope either way”.

Greece’s conservative opposition chief Antonis Samaras announced his resignation as the early results of the referendum became clear Sunday. His New Democracy party had campaigned for a “Yes” result in the referendum.

– On the brink –

Greece is teetering on the brink of financial collapse. If it does not receive cash and loans soon from European institutions, it could be forced to resort to government IOUs or a return to the drachma to keep its economy running.

Last Tuesday, the country defaulted on a 1.5-billion-euro repayment to the IMF, becoming the first developed country to fall into arrears to the institution. As a result, it is cut off from further IMF financing until it settles the amount.

The same day, the last bailout for Greece ran out, despite Tsipras’s appeals for it to be extended until the referendum was over.

Greece was officially declared in default on Friday by the European Financial Stability Facility, which holds 144.6 billion euros ($160 billion) of Greek loans.

Greek banks are now reportedly almost illiquid after a run by panicked customers in the lead-up to the referendum, which Tsipras abruptly called on June 27 to break an impasse with the creditors.

A weeklong closure of the banks and capital controls that included restricting daily ATM withdrawals to just 60 euros ($67) and blocking money transfers abroad slowed the outflow.

But if the ECB does not inject emergency euros into Greece’s banks in the next one or two days, more businesses will go belly up and ordinary Greeks will suffer.

Government spokesman Gabriel Sakellaridis said late Sunday that the Bank of Greece was asking for the ECB to provide money under its Emergency Liquidity Assistance mechanism.


Latest Articles

Most Viewed