Europe in crisis as Greece votes 'no'

Outgoing Greek Finance Minister Yanis Varoufakis (centre) leaving the ministry in Athens yesterday. He said Prime Minister Alexis Tsipras believed his resignation 
would help smooth the path to a new aid deal.
Outgoing Greek Finance Minister Yanis Varoufakis (centre) leaving the ministry in Athens yesterday. He said Prime Minister Alexis Tsipras believed his resignation would help smooth the path to a new aid deal. PHOTO: AGENCE FRANCE-PRESSE

Greek Finance Minister quits in shock move, ahead of emergency summit today

European leaders are scrambling to respond to the surprise Greek referendum result on Sunday, with hopes that fast-track negotiations at an emergency summit today might stop the crisis from escalating even further.

The most dramatic sign that a new start was in the wind came yesterday morning with the shock resignation of Greece's combative Finance Minister Yanis Varoufakis, who played a key role in rallying "no" votes for the referendum.

Mr Varoufakis said on his blog that Prime Minister Alexis Tsipras believed his resignation would help smooth the path to a new aid deal.

"I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through (the) referendum," he said.

Mr Varoufakis had few friends left among European Union leaders, owing to his often-aggressive negotiating style and pugnacious comments on social media.

His replacement is Oxford-educated Euclid Tsakalotos, who was the main negotiator in the recent bailout talks.

The "no" vote, which garnered more than 60 per cent rather than the close call polls predicted, has created a huge problem for Europe's leaders. They now face the choice of caving in to the leftist Greek government's demands of further debt relief for the shattered country or dooming it to a quick exit from the euro zone. Reports yesterday suggested that the EU might be questioning the referendum's legality.

German Chancellor Angela Merkel and French President Francois Hollande met in Paris after press time in an effort to forge a common Franco-German response, setting the stage for an emergency summit of all 19 euro zone leaders today.

The talk last night was that German officials are preparing to take an even harder line with Greece than before the referendum, a stance that could force the nation into insolvency and an exit from the euro zone.

Banks were due to re-open today after a week-long shutdown but are likely to remain closed. Cash withdrawals from ATMs have been limited to €60 (S$90) a day, putting enormous strain on the economy and day-to-day life as food and medicine shortages emerge and companies face closure. There are fears that the banks could run out of cash within days, potentially forcing the government to issue a parallel currency to pay pensions and wages.

Even as negotiations get under way, euro zone ministers will likely encounter a more assertive Greek prime minister in Mr Tsipras, who is expected to present a comprehensive package of proposals to get further aid.

Asian stock markets fell and the euro slid yesterday as global markets tried to weather the immediate fallout from the Greek referendum. Analysts believe there will be further attempts to negotiate a new deal with the country's creditors.

Mr Jonathan Loynes, chief European economist at Capital Economics, said it will be an enormous challenge for both sides to find a new solution before the next deadline of July 20, when Greece is due to make a €3.5 billion bond payment to the European Central Bank. "A default on that payment would surely make it impossible for the central bank to continue to prop up the nation's banks," he said. "What's more, the true deadline may be significantly closer than that, given the anecdotal evidence that Greek banks have only a few days' worth of cash left."

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A version of this article appeared in the print edition of The Straits Times on July 07, 2015, with the headline 'Europe in crisis as Greece votes 'no''. Print Edition | Subscribe