Greece voted against yielding to further austerity demanded by creditors, leaving Europe’s leaders to determine if the nation can remain in the eurozone.
Sixty-one percent of voters backed Prime Minister Alexis Tsipras’s rejection of further spending cuts and tax increases in an unprecedented referendum that has also taken the country to the brink of financial collapse.
Outspoken Greek Finance Minister Yanis Varoufakis resigned after Sunday's vote, giving Greece a chance to lower the temperature on its often confrontational interactions with other European countries.
As the euro fell to a four-week low in Asian trading and Tsipras’s supporters filled Athens’s central Syntagma Square waving Greek flags on Sunday night, German Chancellor Angela Merkel and French President Francois Hollande called for an emergency leaders’ summit on Tuesday. The pair will first meet on Monday in Paris at 6.30pm to discuss Europe’s next move.
The result turns the tables on Merkel and Greece’s other creditors, who must now decide if a financial rescue of the region’s most-indebted country is still possible. It significantly raises the chances of a Greek exit from the single currency, as the country’s banks run out of cash and its economy staggers toward all-out collapse.
“The bill for keeping Greece in the euro area -- without commitment to reform -- has just risen disproportionately,” said Mujtaba Rahman, the head of the Europe practice at political consultancy Eurasia Group. “The hawks in the euro group will win the debate that aid should be given to the country to leave the currency bloc.”
Back to Talks
The euro declined in Asian trading against all 16 major peers, and was down 0.4% versus the US dollar as of 8.02am in Berlin. US Treasuries and the yen advanced as investors sought safer harbours after the vote.
The European Central Bank is meeting on Monday to discuss extending a new lifeline to Greek lenders, which have been closed for a week under capital controls that were imposed by Tsipras to stem withdrawals.
“Our immediate priority is to restore the Greek banking system,” Tsipras, 40, said in a speech after the result. “I’m confident that the ECB fully realizes the humanitarian side of the crisis in our country.”
European leaders are showing no immediate willingness to compromise. They firstly want to wait to see what proposals Tsipras will offer to keep Greece in the euro, according to a European government official with knowledge of crisis strategy.
Varoufakis’s departure, which he announced in a blog post Monday morning, may help Greece as it tries to re-start talks. The Greek-Australian economist often sparred openly with his European counterparts.
The question remains whether Greece’s creditors will be willing to negotiate with a government that has rejected their conditions for staying in the 19-member currency union, after Portugal and Ireland accepted similar measures and emerged from their own bailout programmes. Greece’s departure from the euro is now the most likely scenario, according to predictions from a series of banks including JPMorgan Chase & Co.
Burning Bridges
Tsipras has “torn down the last bridges across which Europe and Greece could have moved toward a compromise,” German Vice Chancellor Sigmar Gabriel said in an interview with the Tagesspiegel newspaper.
Tsipras and his Coalition of the Radical Left, or Syriza, swept to power in January after campaigning to end crippling budget cuts forced upon the country by creditors and promising to restore “dignity.” Five months of protracted and antagonistic negotiations followed and optimism for a deal toward the end of June was suddenly damped when he called the referendum, putting an end to talks.
European leaders largely characterized the plebiscite as a vote on membership in the euro itself, although Tsipras insists Greece can stay in regardless.
The country is buckling under the strain of the capital controls and at risk of undoing four decades of integration with Europe. The economy has already shrunk about 25 percent over the past six years while the jobless rate is still the highest in the euro region.
Banks will struggle to re-open without significant new aid from the ECB, importers are concerned about paying their bills, and pension payments are being rationed. Queues at cash machines in central Athens were noticeably longer than over the weekend, as Greeks waited to withdraw the daily maximum of 60 euros each currently permitted by the government.
Nonetheless, the referendum result was a source of joy for many Greeks and Syntagma Square turned into a raucous street party on Sunday as “no” supporters gathered to celebrate. Some danced to music playing from speaker phones, while others took selfies with the crowds in the background.
Waving the white-and-blue Greek flag, John Govesis, 26, said he and his whole family voted “no.” “I like freedom, I don’t need money from Europe,” he said. “This is the only way forward. I have a job, but maybe tomorrow I don’t.”