ATHENS (Bloomberg) - The battle lines over Greece's future hardened as the country prepares to leave the protection of Europe's bailout regime and its citizens grapple with a new reality of capital controls.
As 12,000 people gathered in the central Syntagma Square with banners that read "our lives do not belong to the creditors," Greek Prime Minister Alexis Tsipras told ERT TV that European leaders wouldn't throw his country. Meanwhile, a European central banker signaled a way still could be found to keep Greece in the currency bloc - if voters reject Tsipras's policies in a referendum Sunday.
"Do they want to kick us out of the euro or the euro zone?," he said, according to a translation of the ERT TV interview. "Let me be frank, no I don't think so. They will not kick us out of the euro zone, Let me explain why, because the cost is immense."
Tsipras and his adversaries from Brussels to Berlin are surveying a landscape transformed by his shock decision to hold a vote on July 5. Greece is on course to withhold a 1.5 billion euro (S$2.3 billion) payment to the International Monetary Fund due June 30, and starting at midnight that day the country's ravaged treasury no longer will be formally under the protection of European Union rescue programs.
Tsipras's decision to hold the vote jolted the financial system so badly that Greece's 11 million citizens now are coping with a new reality of capital controls that have locked their savings inside the country's banks.
"The exit from the euro zone, which was a theoretical point, can unfortunately no longer be excluded," European Central Bank Executive Board member Benoit Coeure said in an interview with Les Echos published late Monday.
It is up to Greek voters to change their fate, he said. By embracing the austerity they elected Tsipras five months ago to fight, they can preserve their membership in the euro club.
"The question is political. The response to that question, it's the Greeks who have it," Coeure said. "If the response is 'yes,' I have no doubt about the fact that the authorities of the euro zone will find the means, under one form or another, to honor their commitments."
Mr Tsipras is counting on voters' anger and hurt to strengthen his hand. His calculation is that Greeks can vote "no" to the terms attached to aid and still not pay the price of being forced out the bloc.
"The referendum will give us a stronger negotiating position when the talks resume," he said in the ERT TV interview. "The higher the participation and numbers of people voting 'no,' the stronger our position will be."
A vote in favour, the likeliest outcome, would make the government's position untenable and probably lead to early elections, which could produce new leadership more amenable to the demands of creditors.
"We think there is a 60 per cent chance that the electorate will vote yes in favor of the bailout," said Kelvin Tay, Singapore-based chief investment officer for South Asia Pacific at UBS Wealth Management. "That's likely to be followed by a period of confusion as there will be pressure on the current government to step to down, because they are actively campaigning for a no vote."
"If they step down then we might have to go through another period of elections before the whole deal gets signed and finalized. Bear in mind that on the 20th of July, we have another 3.2 billion euros worth of payments coming due."
In early trading in Asia on Tuesday, stocks recovered some of yesterday's decline with the MSCI Asia Pacific Index rising 0.7 per cent at 12:50 p.m. in Hong Kong from yesterday's three-month low. The euro declined 0.4 per cent against the dollar to US$1.1193.
