Greek debt crisis: Greece votes no to bailout terms as City economists warn on Grexit and fears rise over euro’s future
The Greek electorate has overwhelmingly rejected conditions attached to an extension of the country’s bailout, in a defiant gesture that threatens the future of the Eurozone.
Prime Minister Alexis Tsipras last night vowed to return to the table and secure a quick deal that will prevent Greece’s banking sector from collapse. Over 60 per cent of voters backed Tsipras’ call to reject the latest bailout offer.
Yet his plan has been met with widespread cynicism from analysts and a frosty reception from fellow European leaders who warned that a no could result in a Grexit (Greece leaving the Eurozone).
“Tsipras and his government are leading the Greek people on a path of bitter abandonment and hopelessness,” German economy minister Sigmar Gabriel said last night. Tsipras has “torn down the last bridges on which Greece and Europe could have moved towards a compromise,” Gabriel added.
Jeroen Dijsselbloem, president of the Eurogroup of finance ministers, said the outcome of the referendum was “very regrettable for the future of Greece”.
Slovakia’s finance minister was even more blunt in his response to the vote. “Rejection of reforms by Greece cannot mean that they will get the money easier,” he wrote on Twitter. “The nightmare of the ‘euro-architects’ that a country could leave the club seems like a realistic scenario after Greece voted no”.
City analysts have ramped up their expectations of a Greek exit from the Eurozone.
“We argue that EMU [European monetary union] exit now is the most likely scenario,” economists at Barclays said.
JP Morgan analyst Malcolm Barr agreed. “Although the situation is fluid, at this point Greek exit from the euro appears more likely than not,” he wrote.
European Commission president Jean-Claude Juncker said he would consult with the leaders of the other 18 Eurozone members, and hold a conference call today with Dijsselbloem and European Central Bank chief Mario Draghi.
Dijsselbloem has called a meeting of the Eurozone’s finance ministers for tomorrow, while European Council president Donald Tusk called a special summit for European leaders, also tomorrow.
“I think they will try to get a deal, but I think they will find the doors are probably going to be shut,” professor Michael Jacobides from London Business School told CityAM. Greece’s outspoken finance minister, Yanis Varoufakis, was forced last night to deny that he is planning to bring in a parallel currency to the euro while talks continue.
“The position of Greece in € is non-negotiable. Liquidity will return with the agreement. Europe will not be left in parallel currencies,” he said.
Varoufakis had earlier told the Daily Telegraph: “If necessary, we will issue parallel liquidity and California-style IOUs, in an electronic form. We should have done it a week ago.”
A spokesman for the Greek finance ministry also rowed back on the comments.
“It was about a hypothetical scenario [in which no agreement was reached],” he told CityAM.
Meanwhile the euro fell sharply in the early hours of this morning. The single currency slid to a six-week low of 133.700 yen in Japan, from 136.185 late on Friday.
Versus the greenback, the euro came within a whisker of a one-month trough of $1.0955 set a week ago. It fell as far as $1.0969.
The European Central Bank (ECB) is likely to maintain emergency funding for Greek banks at its current restricted level, people familiar with the matter told Reuters last night.
“The ECB will likely keep this open until it gets clarity from political leaders. In any case, markets are in for a period of uncertainty and protracted negotiation,” said Bank of New Zealand strategist Raiko Shareef.
Italy’s foreign minister, Paolo Gentiloni, said the Eurozone should resume efforts to reach a deal with Athens. “Now it is right to start trying for an agreement again,” he tweeted. “But there is no escape from the Greek labyrinth with a weak Europe that isn’t growing.”