Greek crisis: European leaders scramble for response to referendum no vote / GUARDIAN

Greek crisis: European leaders scramble for response to referendum no vote

Merkel and Hollande will meet for crisis talks and the ECB faces a crucial decison over whether to its funding freeze after Greece rejected austerity by 61% to 39%

Ian Traynor and agencies

Monday 6 July 2015 06.06 BST / http://www.theguardian.com/world/2015/jul/06/greek-crisis-european-leaders-scramble-for-response-to-referendum-no-vote

European leaders were scrambling for a response on Monday after a resounding no from Greek voters in a momentous referendum on austerity which could send the country crashing out of the eurozone.

With Europe’s financial markets set to follow Asia’s overnight lead by going sharply into the red, German chancellor Angela Merkel was to meet with French leader Francois Hollande in Paris after Greece overwhelmingly rejected international creditors’ tough bailout terms.

The pair spoke by telephone late Sunday, declaring the referendum decision must “be respected” and calling for an emergency eurozone summit which European Union president Donald Tusk said would be held on Tuesday.

A flurry of other meetings will also be held Monday as European leaders sized up the implications of the vote, a victory for Greece’s radical prime minister Alexis Tsipras, who insisted it did not mean a “rupture” with Europe.

With the ramifications still unclear and some analysts putting the chances of a “Grexit” at “very high”, European Commission head Jean-Claude Juncker was to hold a teleconference on Monday morning with European Central Bank chief Mario Draghi, Tusk and Eurogroup head Jeroen Dijsselbloem.

Meanwhile German and French finance ministers were set for talks beginning in Warsaw at 9am BST, while the euro working group of top treasury officials will meet in Brussels.

Britain said it would do “whatever is necessary to protect its economic security” and David Cameron would be chairing a meeting on Monday to review its reaction, a government spokesman said.

“This is a critical moment in the economic crisis in Greece,” a Downing Street spokesman said. “We will continue to do whatever is necessary to protect our economic security at this uncertain time. We have already got contingency plans in place and later this morning the prime minister will chair a further meeting to review those plans in light of yesterday’s result.”

In Athens, Greece’s controversial finance minister Yanis Varoufakis announced that he was standing down immediately after pressure from the country’s “assorted partners”.

He said he hoped his decision would make it easier for Tsipras to negotiate a new deal with other European leaders.

Earlier on Monday morning, Tsipras met the Greek president, Prokopis Pavlopoulos, and asked him to convene a meeting of Greek political party leaders. “We must move forward immediately with negotiations … a strong national front must be created to seek an immediate solution,” Tspiras told Pavlopoulos after the vote.

Tsipras said the creditors – the ECB, the EC and the International Monetary Fund (IMF) – would now finally have to talk about restructuring Greece’s huge debts.

“This time, the debt will be on the negotiating table,” he said.

As the magnitude of the result became clear – the margin was a unexpected 61.3% to 38.7% – thousands of no voters began pouring into the central Syntagma Square in front of the parliament in Athens to celebrate, waving Greek flags and chanting “No, no.”.

In a televised address on Sunday night, Yanis Varoufakis, the Greek finance minister, said the no vote was a rejection of the “iron cage” of the eurozone.

“Today’s no is a big yes to democratic Europe. A no to a vision of the eurozone as a boundless iron cage for its people. From tomorrow, Europe, whose heart tonight beats in Greece, starts healing its wounds, our wounds.”

The sweeping victory for Tsipras, who challenged the might of Germany, France, Italy and the rest of the eurozone, represented a nightmare for the mainstream elites of the EU. With Greek banks closed, withdrawals limited, capital controls in place and the country rapidly running out of cash, emergency action will be needed almost immediately to stem the likelihood of a banking collapse.

But it is not clear whether the European Central Bank will maintain a liquidity lifeline to Greece and whether the creditor governments of the eurozone will sanction instant moves to salvage Greece’s crashing financial system.

Germany’s vice- chancellor and social democratic leader, Sigmar Gabriel, said Tsipras had burned his bridges with the rest of the eurozone. But the Greek leader believes he has strengthened his negotiating hand.

Dutch finance minister Jeroen Dijsselbloem, who chairs the eurozone group of finance ministers, said the result was “very regrettable” for the future of Greece. “For recovery of the Greek economy, difficult measures and reforms are inevitable. We will now wait for the initiatives of the Greek authorities,” he said.

The Greek vote is a huge blow to EU leaders, particularly Merkel, who has dominated the crisis management through her insistence on fiscal rigour and cuts despite a huge economic slump, soaring unemployment and the immiseration of most of Greek society.

“The failure of the euro means the failure of Merkel’s [10-year] chancellorship,” said the cover of the latest issue of Der Spiegel, the German weekly. It depicted her sitting atop a Europe in ruins.

On the markets overnight, Japan’s Nikkei stock average was down 2.2% and in Hong Kong the Hang Seng was down more than 3%.

In Australia, around $A30bn was wiped off the value of shares as the country’s benchmark ASX200 index fell almost 1.5% at the opening.

Oil prices also fell sharply on Monday amid worries about poor demand growth amid global oversupply. Brent futures were down over a percentage point at $59.56 per barrel.

However, the single currency held up against the dollar, after dropping in the immediate wake of the vote. It was at $1.1044 in Tokyo trade, ticking up from $1.0963 soon after early results of the bailout reforms vote were out.

Shinya Harui, currency analyst at Nomura Securities in Tokyo, said the common currency was holding up as investors “assess the spill-over risks in case of a Greek exit from the eurozone”, adding: “I personally think the chance (of the Greek exit) is very high, at around 70-80%.”

In Athens the mood was jubilant. “Spain, and then Portugal, should follow this path. We’re for a Europe of the people,” said one no supporter, Giorgos, 25, brushing off concerns the result could see the debt-laden country plunge further into the financial mire.

But the mood of jubilation was not shared by all “No” voters, with some saying they had been confronted with an impossible choice.

But even “Yes” voters were ambivalent about their camp’s apparent defeat.

Paris, a 41-year-old dentist, said she was resigned rather than sad because, with the dire state of Greece’s finances and Tsipras in power, there was “no real hope either way”.

Greece’s conservative opposition chief Antonis Samaras announced his resignation as the early results of the referendum became clear Sunday. His New Democracy party had campaigned for a “Yes” result in the referendum.

Greece is teetering on the brink of financial collapse. If it does not receive cash and loans soon from European institutions, it could still be forced to resort to government IOUs or a return to the drachma to keep its economy running.

Last Tuesday, the country defaulted on a €1.5bn repayment to the IMF, becoming the first developed country to fall into arrears to the institution. As a result, it is cut off from further IMF financing until it settles the amount.

The same day, the last bailout for Greece ran out, despite Tsipras’s appeals for it to be extended until the referendum was over.

Greece was officially declared in default on Friday by the European Financial Stability Facility, which holds €144.6bn ($160 billion) of Greek loans.

Greek banks are now reportedly almost illiquid after a run by panicked customers in the lead-up to the referendum, which Tsipras abruptly called on June 27 to break an impasse with the creditors.

A weeklong closure of the banks and capital controls that included restricting daily ATM withdrawals to just €60 and blocking money transfers abroad slowed the outflow.

But if the ECB does not inject emergency euros into Greece’s banks in the next one or two days, more businesses will go belly up and ordinary Greeks will suffer.

Government spokesman Gabriel Sakellaridis said late Sunday that the Bank of Greece was asking for the ECB to provide money under its Emergency Liquidity Assistance mechanism.