Hello Drachma? In Landslide, Greece Rejects Euro Bailout

Greek citizens overwhelmingly voted to embrace an uncertain future rather than more grinding austerity. As the country veers closer to an exit from the euro zone, the country's finance minister has resigned in a move it is hoped will increase the chance of a deal with the country's creditors.
Do your worst, Europe: Greek "no" voters celebrate in Athens.

In an historic election on Sunday, the voters of Greece overwhelmingly rejected the latest bailout package offered by European lenders, sending the country on a course toward conflict, bankruptcy and a possible exit from the euro.

In the referendum, 61.3 percent of Greek citizens voted “no” to another bailout, which would have ensured years if not decades of more austerity and economic deprivation.

Ironically, however, the resounding vote by Greeks, urged on by their leftist government to end the politics of austerity, could deliver them just that – a bankruptcy as early as next week, a new, weaker currency, and perhaps years if not decades of more economic deprivation.

Greece, on the other hand, signaled it was willing to go back to the negotiating table. The country's finance minister Yanis Varoufakis, who had angered his euro-zone counterparts with his lectures and insults, announced his resignation on Monday morning.

"Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today," Mr. Varoufakis said on his blog.

This move may enable a return to the negotiating table after the increasing hardening of the two sides.

The defiant outcome of the national referendum was a direct challenge to European leaders including German Chancellor Angela Merkel, who this week threatened to force Greece out of the euro if Athens didn't sign on to tough spending cuts and structural reforms in exchange for more financial aid.

An emergency summit of European leaders has now been called for Tuesday to consider a way forward. Ms. Merkel telephoned her French counterpart François Hollande on Sunday night and the two leaders will meet in Paris on Monday. A German government spokesman in a short statement said the two leaders agreed the Greek vote had to be "respected."

Ms. Merkel and other leaders, such as European Commission President Jean-Claude Juncker of Luxembourg, had been betting that Greeks would approve the package and forestall a crisis.

But the opposite appears to have happened, throwing the challenge right back to Greece's lenders, which include the European Commission, the International Monetary Fund and the European Central Bank. All three last week had signaled that they were prepared to catapult Greece out of the euro zone into almost certain bankruptcy by capping financial aid.

With banks across Greece closed since last Monday and the Athens government likely to run out of money in coming days, it will now be up to Ms. Merkel and her fellow leaders in the euro zone to offer a better bailout or push the first country out of the 15-year-old common currency bloc.

The European Central Bank, which has kept Greek banks on life support but has not increased financial aid since last week, will also play a key role as it could seal Greece's fate if it refuses further support. But the ECB, whose Governing Council will convene later on Monday to discuss the Greek situation, is not expected to cut its emergency funding until European political leaders have decided Greece cannot get any assistance any longer.

Experts were skeptical, however, that even if lenders chose to show last-minute leniency – which is far from certain – a suitable deal could be met with Greece's Syriza-led government, which is pushing for lenders to simply write off much of the billions the country has already received.

“After the election is always different than before the election, but I do not think a new deal can be reached quickly,” Daniel Gros, a German economist and head of the Brussels-based Center for European Policy Studies, told Handelsblatt Global Edition.

In Asia, markets fell in trading Sunday night as the "no" vote was far clearer than most had expected – polls ahead of Sunday’s referendum had it too close to call. The euro initially lost more than 1 percent of its value against the dollar, but trimmed losses to 0.5 percent by 0700 GMT.

Germany's blue chip index DAX and France's equivalent, the CAC40, each fell almost two percent as markets opened. The FTSE100 index in London was down 1 percent. Italian and Spanish bond yields rose slightly.

A flurry of political activity is expected on Monday in Brussels, Berlin, Frankfurt, Paris and Athens as time runs out to keep Greece afloat and inside the euro zone. But initial comments from E.U. officials signaled that it will be extremely tough for Greece to broker any new deal.

After the election is always different than from before the election, but I do not think a new deal can be reached quickly. Daniel Gros, Center for European Policy Studies

"This result is 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," Jeroen Dijsselbloem, head of the Eurogroup, the bloc of euro zone finance ministers that have led talks with Greece, said in a statement.

Chancellor Merkel will travel to Paris on Monday to confer with French President Hollande, while the European Central Bank will hold a meeting in Frankfurt to decide whether to recall the emergency loans that have kept Greece’s banking system just barely afloat for the last few months. The European Commission said its president, Mr. Juncker, would hold a conference call with the representatives of the E.U.'s leading institutions, including ECB President Mr. Draghi.

Despite the massive uncertainties now facing Athens, the result marks a huge victory for the country’s radical leftist Prime Minister Alexis Tsipras. He had urged the population to vote “no” and promised – despite threats from other European leaders – that he would be able to negotiate a better bailout package for Greece with his people behind him.

Perhaps the biggest losers of the night are Germany’s chancellor and her finance minister, Wolfgang Schäuble. Their hard stance has left them portrayed as the villains in this ongoing Greek drama for many of the people in Greece.

But while Mr. Tsipras’s supporters celebrated on Athens' streets Sunday night, many commentators and politicians in Germany remained steadfast in their determination not to give any more ground to Greece – a line supported by most people in Germany. Mr. Schäuble in particular has seen his approval ratings in Germany rise recently as he continues to take a tough line with Greece.

 

A happy man: Alexis Tsipras, the winner of Sunday's referendum, casting his "no" ballot.

 

On Sunday, Mr. Schäuble suggested in an interview published by Bild newspaper that a “temporary” exit from the euro zone, by way of the introduction of a parallel national currency, might be Greece’s best option.

Sigmar Gabriel, Germany’s deputy chancellor and economy minister, in an interview with the Berlin newspaper Tagesspiegel, said that new negotiations with the Greek government were “almost impossible to imagine.”

Germany’s key fear is that, if it gives in to Greece, other southern European countries that have received bailouts over the past few years will be the next ones to come calling. Mr. Gross of the Center for European Policy Studies said that giving in would mean “even more money for a government and a country which has shown that, if things get tough, they will just say no and not pay.”

Yet, despite the odds, there are some market watchers that believe the sheer decisiveness of Mr. Tsipras' victory may yet serve as a wake-up call for European leaders and help bring the two sides back to the negotiating table. Even before the results were announced, there were signs that some European leaders' rhetoric was easing up on exactly what a “no” vote would mean for Greece’s place in Europe and the euro.

In a sharp shift of tone, French economy minister Emanuel Macron warned that it was European leaders' responsibility not to turn its programs for Greece into a Versailles Treaty, referring to the post-World War I treaty that subjected Germany to tough reparations that many have said were the precursor to Adolf Hitler’s rise to power.

“Whatever the outcome of the referendum, we have to restart the political discussions tomorrow,” Mr.  Macron said Sunday.

Italian Prime Minister Matteo Renzi, who earlier this week said Greece faced a choice between “the euro and the drachma,” told an Italian newspaper on Sunday that he would be in favor of restarting negotiations with Athens regardless of the referendum’s outcome.

As the last-gasp negotiations begin, it seems certain that Greece can expect more pain in the coming week.

Mr. Tsipras and his finance minister, Yanis Varoufakis, had promised voters that a “no” vote would allow them to broker a quick deal and that banks could re-open again on Tuesday, but most observers say this is extremely unlikely.

For the banks to re-open, it would be up to the European Central Bank to loan new emergency funds to the Greek banking system, which one source in the ECB said was “almost out of the question.”

Instead, market analysts around the globe said the probability is much greater that Greece will now have no choice but to leave the euro zone. Jörg Krämer, the chief economist of Commerzbank, was among those that said “Grexit” is now the most likely scenario – possibly as soon as July 20 when Athens has to repay a major loan to the ECB.

But while many German politicians have rejected lending additional money to Greece to keep it in the euro, a “Grexit” will not come cheap either.

Jens Weidmann, the president of the Bundesbank, has warned Berlin that it would no longer be able to count on the German central bank handing over billions of euros in profits to the finance ministry every year. The reason is the risks to the Bundesbank’s finances stemming from a Grexit.

This could prove painful for Mr. Schäuble, who has vowed to maintain a balanced budget in the coming years. That goal assumes an annual transfer of €2.5 billion coming from the Bundesbank.

In Greece, various emergency measures were underway Sunday evening in Athens to avoid the country running out of the money and keep its banks and government afloat as long as possible.

Greek media reported that Finance Minister Yanis Varoufakis and the head of Greece’s central bank planned a late night meeting with the heads of Greece’s banks to go through scenarios for re-opening the banks this week.

Swiss newspaper NZZ am Sonntag reported that Greece was in touch with Swiss authorities and considering offering wealthy Greeks an amnesty from criminal punishment if they bring back any money hidden in Swiss bank accounts. The idea would be for them to pay a 21-percent tax on any hidden assets they declare.

Estimates for how much money such a tax amnesty could bring the Greek government ranged anywhere from €200 million to €2 billion. It would mark a small start on the long road ahead.

 

Christopher Cermak is an editor with the Handelsblatt Global Edition in Berlin. Gerd Höhler and Jens Münchrath of Handelsblatt and Gilbert Kreijger of Handelsblatt Global Edition contributed to this story. To contact the author: [email protected]