Europe Warns Greeks That ‘No’ Vote in Referendum Would Lead to Euro Exit

30 Jun 2015 | Author: | No comments yet »

Europe Warns Greeks That ‘No’ Vote in Referendum Would Lead to Euro Exit.

Will they accept more austerity or will they refuse resulting in Greece defaulting on its upcoming IMF payment? LONDON: Global stocks slumped Monday over fears that Greece may be heading for a eurozone exit, with the single currency area’s debt-laden nations and banking equities hardest hit.European and Greek leaders began in earnest their battle for the Greek electorate, each trying to convince voters—who suddenly hold the future of the country and Europe’s currency union in their hands—as to which path will bring them the least pain.European leaders have appealed to Greeks to vote “yes” in a referendum on their country’s bailout, warning that the risk of Greece’s exit from the euro was real, as Athens confirmed it wouldn’t be able to make a loan repayment to the International Monetary Fund due later today (AEST).Greek Prime Minister Alexis Tsipras said on Monday he would respect a potential Greek decision to stick to the path of austerity as prescribed by foreign creditors, but his government would not be the one to carry it out.

BRUSSELS—It is impossible to know where the Greek crisis will end, but it is hard to see it ending well—for Athens or the rest of the European Union. That is the question being mulled by the Greek people expected to decisively answer in what’s billed as a yes/no referendum on yet more belt-tightening scheduled for July 5. Markets around the world shuddered, but didn’t collapse, in reaction to Greece’s weekend decision to hold a referendum next Sunday about the terms its creditors want for more bailout loans. In Europe, markets closed in the red, with Frankfurt’s DAX 30 losing 3.56 percent to 11,083.20 points, the CAC 40 in Paris shedding 3.74 percent to 4,869.82 points and London’s benchmark FTSE 100 index of top companies falling 1.97 percent to 6,620.48 points. Despite serial negotiations with the powers that be in Brussels and Greece’s creditors, hope for a compromise solution that all sides can live with is fast diminishing.

But it was eurozone nations with high debt burdens that were hardest hit, with both Lisbon and Milan plunging more than 5 percent and Madrid slumping 4.56 percent. “We’re seeing a flight for safety in financial markets at the start of the week as investors respond to the actions of the Greek government over the weekend that has set in motion a series of events that may ultimately lead to Greece exiting the eurozone,” said Craig Erlam, senior market analyst at Oanda trading group. “The euro experienced heavy selling … as traders sought the safety of the yen, Swiss franc and gold to protect against the negative fallout from events in Greece.” Greek authorities ordered Athens’ stock market shut Monday, alongside decisions to close the country’s banks for a week and impose capital controls – putting European banks under intense pressure. But Tsipras dismissed talk of a return to the drachma. “I don’t think that their plan is to push Greece out of the euro but to end hopes that there can be different policies in Europe,” he said. Saying he felt betrayed and saddened by the referendum call, he stated, “In one night, Europe suffered a major blow, and goodwill was flown to the wind.” Timothy Garton Ash, professor of European studies at Oxford University, said that if Greece leaves the euro, it would be “huge blow for the EU particularly in the eyes of the outside world: China, India, Russia, and the U.S., not to mention closer neighbors.” In their eyes, the failure to manage the crisis would be taken as a sign that the “EU can’t get its act together.” For the eurozone, it would demonstrate that the currency union isn’t irreversible—that a country could join and leave.

In the long interview with two leading journalists he insisted that in the past five months Greece’s European partners and the lending institutions had repeatedly moved the goalposts, demanding more each time Greece had offered compromise. Deutsche Bank tumbled 5.81 percent, Banco Santander plunged 6.70 percent, BCP sank 11.11 percent, and Italy’s Monte dei Paschi di Siena (BMPS) lost 10.24 percent.

Over the coming days, the debate about the history-making consequences of voting “yes” or “no” is likely to polarize their crisis-battered society. Many economists and officials fear that without further financial support, Greece may have to abandon the euro, sparking a messy departure from the bloc. He added that in his opinion the Eurozone’s stance was as much driven by politics as economics, as other peoples in Europe suffering under austerity policies had to be offered Greece as an example; Syriza intended to show there was another way instead of austerity, and that the Eurozone’s leaders were determined to strangle that idea at birth. The drastic measures to protect Greece’s banking system against the threat of mass panic came after the European Central Bank said it would not increase its financial support to Greek lenders, despite early signs of a bank run.

It also raises questions about how far Greece will slide from the Western European core, and whether other powers, in particular Russia, would seek to assert influence. Greece will not be paying Tuesday’s 1.6 billion euro IMF bill; a default. “How can we pay the IMF,” said Tsipras” when our banks have been all but suffocated out of existence?”

Greek officials argue that the referendum is just the latest stage in Greece’s negotiation process with its creditors—the strongest indication so far of Syriza’s willingness to use high-stakes brinkmanship in its challenge to Europe’s economic orthodoxy. At a time when people are hoarding their cash and panic has emptied ATM machines and is causing a run on banks which may be forced to close their doors unless they receive an emergency injection from the Central Bank, the PM’s burgeoning approval rating has many on the outside looking in scratching their heads. Eurozone finance ministers refused on Saturday Athens’s request to extend the European portion of Greece’s €245 billion bailout by an extra month.

Even if Greece stays inside the euro, the negotiations have corroded relations between Greece and other members of the currency area in a manner that will take a long time to repair. And not only Greek democracy, because if the Greek prime minister gets his way and secures the debt forgiveness he is seeking, it will also increase the financial burden on the other democracies in the eurozone. Tsipras, who laid out his case for a “no” in an interview on Greek television late Monday, faces the double challenge of convincing Greeks that backing him would allow him to bargain for improved financial terms from Europe and the IMF—and persuading the country’s international creditors to still give him some meaningful concessions. Tsipras is “taking Greece into a situation where it will look like a failed state.” Yet, even if Athens exits the euro, he says, it will probably remain within the 28-nation EU—not least because of the financial transfers it would continue to receive.

The majority does want to stick with the euro no matter how unkind it’s been to their country’s economy that was booming before it dumped the drachma, but on their own terms. Tsipras can’t have a different bailout deal to the one he spurned in Brussels talks last week. “If someone says the government will have a stronger negotiation position with a ‘no’ vote, it is simply not true,” said Donald Tusk, who presides over summits of EU leaders. “I’m afraid with such a result there will be even less room for negotiation.” German Chancellor Angela Merkel, Europe’s most powerful leader, reiterated her view on Monday that Greece needed to implement market-friendly overhauls if it wanted financial aid from other European taxpayers. “It is important—and in this position there will be no change—that [Greece’s] own efforts and solidarity continue to belong together,” Ms. And he argues that, at some point, a Greek exit would encourage the remaining 18 members to bind their economies closer together in an effort to improve the way it works. An unnamed senior government official told the Daily Telegraph “If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer. The vision that a Greece exit can be comfortably managed by the eurozone is based on the view that it is an outlier—a country that should never have been invited in the first place.

This is what officials have called the ballast theory, which likens the currency bloc to a hot-air balloon that would rise once Greece has been thrown overboard. The yields on the government bonds of other countries that have been embroiled in Europe’s debt crisis, such as Spain, Italy and Portugal, remained far from the levels seen at the peaks of investor jitters in 2011 and 2012, when the eurozone looked in serious danger of collapse. German parliamentarian and member of Angela Merkel’s Christian Democrat Union, Christian von Stetten, does, however, represent the prevailing German view when he says, “The experiment with the Greeks in the euro zone who are unwilling to implement reforms, has failed and must be ended.” If the unthinkable happens, Mike Bird writing in the Business Insider predicts a gloomy scenario of “rampant inflation, political unrest, debt defaults and a possible ‘contagion’ with Europe’s financial sector.” Greece’s short-medium future would look bleak, but as the Financial Times columnist, Wolfgang Munchau points out, “The creditors’ program was an economic version of Dante’s hell.

Garton Ash said the German-inspired policy prescriptions were deeply flawed and possibly unachievable by Greece “even with the best political will in the world.” Mr. Without extra liquidity, Greek banks wouldn’t have been able to continue cover withdrawals from Greek depositors, who had been pulling out their money at a greater pace since referendum announcement. The upside would be that Greece’s government would be in charge of its own currency, which would be devalued making the country more competitive in terms of tourism, exports and foreign investment. Central bankers from some countries, most notably Germany, have been pushing to reduce the value of Greek collateral needed to secure the emergency loans, which would further squeeze Greek banks. Alan Greenspan, a former chairman of the US Federal Reserve, has warned that a Grexit could spell the euro zone’s end because the ECB would be left holding the baby — in other words, unpaid Greek debts to the tune of billions.

Tsipras and Syriza’s supporters are seeking to define the vote as a message of defiance against austerity policies demanded by lenders that many Greeks view as unfair and excessive. Yet, if Greece was untied from the eurozone, as many of these economists wish, it would face a sharp devaluation that would cause significant further disruption to the economy in the short run. Varoufakis had been the victim of tricks at Saturday’s meeting of finance ministers, pointing out that Greece had “a veto at the core of the EU.” For now, many European officials are hoping Mr. On Tuesday, supporters of a “yes” vote, including Greece’s center-left and conservative opposition, are due to hold their own demonstration in the square, under the slogan “We’re Staying in Europe.” Opinion surveys conducted since Mr.

On Tuesday, Greece will be cut loose from international rescue loans for the first time in more than five years as its European bailout program officially expires. If Greece slips into arrears with the IMF on Tuesday, doubts may intensify over the country’s solvency and raise questions about the condition of Greek banks and the collateral they use for ECB loans. European authorities are already working to avoid financial contagion from spreading to other parts of the 19-country eurozone, after Greece decided on Sunday to close its banks for nearly all operations for at least a week.

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