Europe to Greece: Get back to the bargaining table before it’s too late

30 Jun 2015 | Author: | No comments yet »

Asia markets hit by Greece fears, Shanghai plunges.

SINGAPORE: Asian equities tumbled Monday on expectations of a Greek eurozone exit after Athens announced a referendum on creditors’ proposals, while Chinese stocks gyrated wildly after losing some 20 percent in the past two weeks.

ATHENS: Greeks woke up to shuttered banks, closed cash machines and a climate of rumours and conspiracy theories on Monday as a breakdown in talks between Athens and its creditors pushed the austerity-battered country to the brink.Diplomatic efforts to persuade Greece to engage with European lenders have intensified ahead of the expected expiration of the Greek bailout on Tuesday, after Greece confirmed it would not meet a €1.6 billion payment due to the IMF.

Greece’s prime minister Alexis Tsipras said he will “respect the outcome” of Sunday’s referendum and act in accordance with the Greek constitution, in a strong suggestion that he will resign if the public vote Yes. But if the euro zone’s weakest link does default this week and is eventually forced out of the single currency, it seems inevitable that the German chancellor, Europe’s most powerful leader, will “own” the Greek problem and that a decision to let Athens go would profoundly shape her legacy. It was the worst day of the year for U.S. stocks, with the Dow Jones dropping 350 points and erasing its gains for 2015, while the S&P 500 and the Nasdaq both fell more than 2%. With Greek banks due to remain closed, concerted efforts were under way to try and re-engage Athens with creditors, with senior EU figures insisting the door was still open for Greece to return to the negotiating table.

In an live interview to Greece’s public broadcaster ERT, which his government reopened last month on the first anniversary of its overnight closure by the previous government, Mr Tsipras also rejected the suggestion, made by a number of European leaders earlier in the day, that a No vote will lead inevitably to a Grexit as he said it would prove too costly for the other side. For months, the notoriously cautious Merkel has been wrestling with the question of whether to risk a “Grexit” and accept the financial, economic and geopolitical backlash it would surely unleash. Greece has less than 48 hours to pay back 1.6 billion euros ($1.77 billion) of International Monetary Fund loans, and a default would set in train events that could lead to the country’s eventual exit from the euro currency bloc.

He said a fresh mandate would strengthen his government’s hand. “Although our final proposal had been accepted, the institutions backtracked thus undermining the prospect of an agreement,” he said, accusing the institutions of not being interested in finding common ground but rather determined to impose “extreme measures”. Tokyo ended down 2.88 percent, or 596.20 points, at 20,109.95, Sydney shed 2.33 percent, or 123.4 points, to 5,422.5, and Seoul was 1.42 percent off, giving back 29.77 points to 2,060.49.

But after Tsipras angered Greece’s international lenders by announcing a snap referendum on the terms of a cash-for-reforms deal, hopes of a last-minute breakthrough are fading fast. “I can’t believe it,” said Athens resident Evgenia Gekou, 50, on her way to work. “I keep thinking we will wake up tomorrow and everything will be OK. Mr Tsipras’s surprise decision to call a referendum just after midnight on Friday kicked off an unprecedentedly short campaign of just eight days in which Greeks will have to decide whether they back the approach taken by his government or by the country’s lenders in months of talks that ended in acrimony at the weekend. Shanghai, which rose 2.5 percent in early trading, slumped by 7.58 percent at one point despite the rate cut, but ended down 3.34 percent, or 139.84 points, at 4,053.03. I’m trying hard not to worry.” The government will keep banks shut at least until after July 5, the date of the referendum, and withdrawals from automated teller machines — which are shut on Monday — will be limited to 60 euros a day when they reopen on Tuesday.

The creditors wanted Greece to cut pensions and raise taxes in ways that Tsipras has long argued would deepen one of the worst economic crises of modern times in a country where a quarter of the workforce is already unemployed. The move resulted in long lines at ATM machines across the country — withdrawals were limited to $67 a day — and crowds of frustrated and fearful seniors outside shuttered banks unable to get their end-of-month pension money. “The events of this weekend have, for sure, increased the downside risks of a disorderly and disastrous scenario for both Greece and the euro zone,” Jonathan Hill, senior investment strategist, wealth management, for Gibraltar Private Bank & Trust, told the Daily News. As Tsipras announced the emergency measures late on Sunday, there were long queues outside ATMs and petrol stations as people raced to take out cash before it was too late. “I’ve got five euros in my pocket, I thought I would try my luck here for some money.

She warned the Greek government she would not allow Europe to sacrifice its long-term fiscal principles for the short-term goal of keeping Athens in the euro. “Europe can only work when we’re prepared to compromise: no one can get 100 per cent,” she said. Positioning itself against both the lenders and the government, the country’s communist KKE party, which took 4.5 per cent in the last election, has appealed to voters to spoil their ballot by writing No over both boxes.

The queues in my neighbourhood were too long yesterday,” said plumber Yannis Kalaizakis, 58, outside an empty cash machine in central Athens on Monday. Tsipras, leader of the left-wing Syriza party, took office this year on the strength of his anti-austerity stance with Greece mired in a devastating recession and 25% unemployment rate. The debate between the political parties on the referendum began almost immediately on the country’s half-dozen television stations, which are offering almost dawn-to-dusk coverage of the situation. Tsipras, appearing on Greek state television Monday night, said a “no” vote victory in Sunday’s referendum would boost the country’s negotiating stance, and added he would step down if the people voted to accept “austerity in perpetuity.” Ratings agency Standard and Poor’s on Monday cut Greece’s sovereign debt rating further into junk levels to CCC-, citing a 50% probability it would leave the euro zone.

Allowing Greece to exit would be by far the boldest move she has taken since coming to power nearly a decade ago, far riskier than her decision in 2011 to phase out nuclear power. In private conversations Merkel has acknowledged as much, saying her biggest fear is that Germany could be blamed for “blowing up Europe” for the third time in a century. He added that lenders had made significant concessions and said the Greek leadership had been informed “debt measures” would be considered in the autumn, stressing the “door was open” to recommence negotiations. She has stuck doggedly to her “step by step” approach, in which aid is doled out in return for commitments to economic reform and deep spending cuts.

European equity markets sank in early trade Monday, with Frankfurt, Paris, Madrid and Milan each losing more than four percent, while London tumbled 2.2 percent. They were turned away, Reuters photographers said. “I’ve worked all my life, only to wake up one morning to a disaster like this,” said one shop owner, who was there to collect his wife’s pension.

In a letter on Monday night to Mr Tsipras, Taoiseach Enda Kenny said he had hoped for an agreement when finance ministers met last Saturday. “Unfortunately, your decision to break off these negotiations meant that this was not possible at that time,” Mr Kenny said. “As I have recalled to you at our meetings, Ireland itself experienced a very difficult economic period and worked its way through a programme of assistance and has great empathy for Greece and its people.” The Athens stock market is closed until July 7. “When you don’t know a lot of what could happen, the standard and rational response is to reduce your positions, reduce your risky bets and park your money somewhere safer,” Sam Tuck, a senior currency strategist at ANZ Bank New Zealand, told Bloomberg News. “The only thing we really do know is we don’t know a lot of what could potentially happen.” Chinese shares seesawed from black to red after the People’s Bank of China cut rates Saturday and lowered the amount of cash lenders must keep in reserve. Despite the financial shock, parts of daily life went on as normal, with shops, pharmacies and supermarkets in the city opening and Greeks meeting to discuss their country’s fate at cafes and restaurants. Most Greeks were completely unprepared for this, even those who expected it was going to happen.” Prof Kalyvas added: “Because these things are highly variable and evolving all the time, it’s very difficult to say how things are going to pan out.” People’s current party and political identifications were quite recent and thus liable to change, he added. In recent weeks, Merkel has come under criticism for letting Schaeuble take the lead in the negotiations with Greece, even though his scepticism is well known.

Analysts said the announcement was in response to dramatic stock market falls over the previous two weeks, coming after the main index soared more than 150 percent over the past 12 months. Another analyst agreed that while recent polls suggest that a majority of Greeks wanted the government to seal an agreement with the lenders, even if this meant more austerity, there were a couple of factors that could come into play in the next few days. “One is obviously that banks are closed and capital controls are in place and there is a question whether Greeks will feel their government has let them down and put them in this difficult position, or whether they will blame Greece’s lenders for putting extra pressure on them,” said Nick Malkoutzis, of political analysis website Macropolis.gr.

Despite the hardening of positions, officials around Europe and the United States made a frantic round of calls and organised meetings to try to salvage the situation. In his 2014 memoir “Stress Test”, former US Treasury Secretary Timothy Geithner described Schaeuble’s stance, laid out in a meeting between the two on the North Sea island of Sylt three years ago, as “frightening”.

Back in March, during Tsipras’s first visit to Berlin as prime minister, she spent over five hours with him at a dinner in the Chancellery going through Greek reform pledges line for line. Merkel’s coalition partners, the Social Democrats (SPD), will be quick to turn on her if the economic and financial costs of an eventual “Grexit” prove unwieldy. Indonesia-based mining firm PT United Tractors Tbk gained 4.39 percent to 20,200 rupiah, while real estate company Bumi Serpong Damai Tbk Pt slipped 4.56 percent to 1,675 rupiah.

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