Euro zone readies for Greek default after Tsipras referendum call

27 Jun 2015 | Author: | No comments yet »

Draghi Can’t Avoid Spotlight With Greek Destiny in ECB Hands.

Eurozone finance ministers have refused to extend Greece’s bailout programme beyond Tuesday – meaning Athens is at risk of defaulting on a €1.5bn IMF payment.

Eurogroup head Jeroen Dijsselbloem said finance ministers would reconvene to discuss the consequences of the latest developments, and “prepare for what’s needed to ensure the stability of eurozone remains at its high level”.With finance ministers rejecting a Greek request for a bailout extension to cover a referendum, debt payments looming, and bank customers lining up to pull money out, the European Central Bank president must decide how to react. The Greek government have announced a snap referendum on 5 July – and the country’s Finance Minister, Yanis Varoufakis, had requested an extension of several weeks until it had taken place. Police tightened security around bank teller machines as lines formed at some in the darkness almost as soon as Tsipras’s early hours televised speech was finished. The Governing Council, which is due to meet “in due course,” according to the ECB, faces the dilemma of cutting support for the Greek financial system and courting accusations of political meddling, or pouring more cash in and risking the credibility of the euro.

However, Eurogroup President Jeroen Dijisselbloem has said it will not be possible to provide a temporary extension until the result of the ballot is known. Photo: Aris Messinis/AFP Athens/Brussels: The euro zone got ready to deal with a Greek debt default next week after refusing to extend credit following Prime Minister Alexis Tsipras’s surprise announcement of a referendum on an offer from creditors that his leftist government rejected. The ECB’s power over Greece lies in the emergency aid it has fed to keep the nation’s banks alive through five months of failed political talks on unlocking bailout funds.

The referendum was so voters could decide whether to accept a deal offered by Greece’s creditors, which would see the current bailout scheme extended by five months, with an additional €12bn pumped into the economy. He told reporters, however, that there is still the “possibility of negotiating through the day and through the night and through the day ahead of us in the coming days to improve the agreement.” The eurozone’s top official, Jeroen Dijsselbloem, says the bailout program for Greece will expire on Tuesday. The fact that no progress has been made ahead of Tuesday’s deadline for Greece’s €1.5bn payment means there is a possibility that Athens will be unable to receive emergency support for its banks. The Frankfurt-based ECB’s Governing Council will review the liquidity of Greek banks on Sunday, according to a Greek official who spoke on condition of anonymity. But voters in other euro zone states—including economic powerhouse, other southern states which have suffered harsh austerity in return for EU cash and poor eastern countries with living standards much lower than Greece—have lost patience.

The ECB has repeatedly increased the cap on Emergency Liquidity Assistance that the Greek central bank provides to offset deposit outflows, and which stood at almost 89 billion euros ($99 billion) as of Friday. He said he was obliged to respond based on the sovereign will of the Greek people, who would be asked to accept or reject the offer in the referendum question in just over a week. That’s up from less than 60 billion euros in February, when the ECB cut Greek banks off from normal refinancing because of the newly elected government’s opposition to reforms linked to the country’s bailout.

The Prime Minister urged Greek voters to send a “sound response” to the world and sought to reassure them that whatever the outcome, “Greece will stay part of Europe”. But after they were blindsided by Tsipras’s surprise middle-of-the-night announcement that he rejected their offer and would put it to voters only after Tuesday’s deadline, one after another said all that remained to discuss was “Plan B”—how to limit the damage of default. “We have no basis for further negotiations,” German finance minister Wolfgang Schaeuble said ahead of the meeting. “Clearly we can never rule out surprises with Greece, so there can always be hope.

He said that what had been proposed to Greece “did not contain any plan for giving, instilling hope in investors, both Greek and non-Greek, in consumers, in depositors”. The effect has been to buy time for Greece to reach a deal with euro-area countries and the IMF, as well as with the ECB, on a way to unlock bailout funds. But the IMF claimed the proposals were insufficient and said further cuts to salaries and pensions were needed in exchange for the €7.2bn Greece badly needs to keep its economy afloat.

While any decision to rein in ELA requires a two-thirds majority in the 25-member Governing Council, that may not be hard to achieve should Draghi back it. Speaking earlier in Brussels, Mr Tsipras slammed his country’s creditors, telling reporters: “The European Union founding principles were democracy, solidarity, equality and mutual respect.

I think with the announcement of this referendum we’re basically closing the door for any further negotiations.” With most Greek banks closed for the weekend, there was no sign of panic on the streets of Athens. Throughout the ups and downs of the recent negotiations, Greeks have by and large resisted the urge to withdraw money from their accounts, pinning their hopes on a last minute deal with the country’s creditors. The Bundesbank president said on Thursday that ELA for Greece raises “serious” concerns over monetary financing of governments, which is illegal under European Union law, as Greek banks regularly roll over about 9 billion euros of short-term government debt. One bank has imposed withdrawal limits of €3,000 per account, and some ATMs have handwritten “empty” signs on them – although I managed to withdraw cash at two separate locations. The EU’s economics and monetary affairs chief, Pierre Moscovici, says the differences between Greece and its creditors can be bridged, and he emphasizes the importance of Greece remaining in the 19-nation euro bloc.

Tsipras said he would respect the outcome of the vote, but he argued the lenders demands “clearly violate European social rules and fundamental rights”, would asphyxiate Greece’s flailing economy and aimed at the “humiliation of the entire Greek people”. The head of the International Monetary Fund says that Greece’s rescue creditors “will continue to work” for a deal to save the country — even though Athens called for a referendum and advised Greeks to reject the proposals of international creditors. Reuters Karolina Tagaris, Vassilis Triandafyllou, Matthias Williams, Lefteris Papadimas and Gina Kalovyrna in Athens, Erik Kirschbaum in Berlin, Robin Emmott, Alastair Macdonald, Barbara Lewis, Robert-Jan Bartunek, Philip Blenkinsop, Alexander Saeedy, Renee Maltezou and Jan Strupczewski in Brussels contributed to this story. After our last meeting, the door on our side was still open, but that door has closed on the Greek side.” Greece has a debt repayment on Tuesday it cannot afford and its bailout program expires the same day.

He told the European Parliament this month that it should be “absolutely clear” that the decision on Greece’s bailout program must be taken by elected leaders rather than by central bankers. “Draghi is the most brilliant man, and he has proven to be a true friend of Greece,” said Dimitrios Avarkiotis, a 44-year-old lawyer, as he took enough cash from his bank in Piraeus on Saturday to get him through the week. “The Europeans won’t let go of our hand at a time like this.”

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