Greece’s creditors turned up the heat on Prime Minister Alexis Tsipras to come up with a plan to stay in the euro as banknotes become more scarce and the nation stares at calamity.
After voters emphatically chose to endorse Tsipras’s call for a “no” to more austerity in Sunday’s referendum, European finance ministers are waiting for a proposal to re-start bailout talks. In a bid to speed the process, Greek Finance Minister Yanis Varoufakis said he was stepping down after more than five months of confrontation.
The onus is on Greece to act quickly to avoid a meltdown of its banking industry. A week of capital controls is set to be extended, while machines that have money to dispense are running short of notes and pensions are rationed. German Chancellor Angela Merkel and French President Francois Hollande are due to meet other euro-region leaders tomorrow as the crisis escalates.
“Time is running out and the window for a deal keeps narrowing,” Eurasia Group analyst Mujtaba Rahman wrote in a note to clients. “The euro leader’s summit on Tuesday is likely to prove decisive for Greece’s Euro membership.”
Muted Markets
Varoufakis said his departure was intended to bolster Greece’s position after a larger-than-forecast 61 percent of voters rejected further austerity. The motorbike-riding economics professor had sparred openly with counterparts including Wolfgang Schaeuble of Germany.
The referendum asked Greeks whether they would accept the terms set by creditors in exchange for financial aid, including curbs on early retirement and sales-tax increases.
“I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum,” said Varoufakis, 54, referring to the body of euro-area finance chiefs that led aid talks. “And I shall wear the creditors’ loathing with pride.”
The resignation helped mute declines in the euro and European stocks. The euro pared losses after the statement and was down 0.7 percent to $1.1033 at 11:17 a.m. in London. The Stoxx Europe 600 Index fell 0.9 percent, compared with a drop of as much as 3.2 percent a week ago when Greece introduced capital controls and closed banks.
Getting Desperate
Greece desperately needs to secure a new deal to save its economy from outright collapse. Banks may run out of cash within days if not hours unless the European Central Bank extends an emergency lifeline.
Euro-zone leaders are due to meet on Tuesday for an emergency summit on Greece a day after Merkel and Hollande hold talks in Paris on a common position. The ECB is also due to evaluate its next moves on Monday; Tsipras’s banking decree expires at midnight, and will probably need to be extended without a quick decision from the lender.
“I shall wear the creditors’ loathing with pride”European leaders are showing no immediate willingness to compromise. They firstly want to wait to see what proposals Tsipras will offer to keep Greece in the euro, according to a European government official with knowledge of crisis strategy.
Merkel’s chief spokesman, Steffen Seibert, said no resolution was imminent. A deal within 48 hours will be “difficult to achieve,” he said.
Radical Coalition
The Coalition of the Radical Left, or Syriza, led by Tsipras swept to power in January after campaigning to end crippling budget cuts forced upon the country by creditors and promising to restore “dignity.” Optimism for a deal toward the end of last month was suddenly halted when he called the referendum on June 27, putting an end to talks.
European leaders had largely characterized the plebiscite as a vote on membership in the euro itself, although Tsipras insists Greece can stay in regardless.
The country is buckling under the strain of the capital controls and is at risk of undoing four decades of integration with Europe. The economy has already shrunk about 25 percent over the past six years while the jobless rate is still the highest in the euro region.
“Tsipras’s margin of victory and Varoufakis’s resignation strengthens his hand in the upcoming negotiations,” Marchel Alexandrovich, senior European Economist at Jefferies International Ltd., said. “Now it is up to Merkel and Hollande to decide whether to let Greece go, or to offer a better deal than was on the table 10 days ago.”
