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July 6, 2015

No By The Greek Referendum Saves Face, Deepens the Chaos

By EconMatters

The Greek Referendum ended on Sunday with 61.3% of the 6.16 million Greeks voting No to reject creditors' demands for more austerity. Yanis Varoufakis, Greece's finance minister, has announced his resignation in his blog (see below) only hours after the No vote that he urged (read the 6-bullet-point by Varoufakis here).
Minister No More!    
Posted on July 6, 2015 by yanisv  
The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage.  
Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.
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. 
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.  
And I shall wear the creditors’ loathing with pride.  
We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government.  
The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.

Greek Debt Deadlines Still Loom

The No vote does not change the debt fact and deadlines.  The IMF updated its estimate on July 2 that Greece will need an extra 50bn euros ($55bn) over the next three years to stabilise its finances under the existing, disputed bailout plans.  The IMF also cut its forecast for Greek economic growth from 2.5% to zero. IMF suggests that Greece needed debt relief in the form of extended repayment periods and lower interest rates. The European Commission, part of the "troika" of creditors along with the IMF and the European Central Bank, wants Athens to raise taxes and cut welfare spending.

Greece Wants a 30% Haircut

Greece's Economy Minister, Giorgios Stathakis, has told the BBC:
"We have a new version of the debt sustainability analysis which asks for a 30% direct or indirect haircut of the debt. And this is a very important part of our proposal." 
According to BBC, the Greek proposal is to go before the eurozone on Tuesday. The haircut is something Germany and other eurozone lenders are resisting and German Finance Ministry spokesman Martin Jaeger already said cutting Greek debt isn't on the table.  German Chancellor Angela Merkel will meet French President Francois Hollande in Paris later on Monday, and there will be a summit of eurozone leaders on Tuesday.

Greece Wants to Stay in Euro 

From Varoufakis's blog post, his resignation seems involuntary serving as some kind of a compromising gesture from Greece.  It seems clear to me that Greece wants to stay in the euro bloc but is thinking it can get some free lunch of debt forgiveness without the suffering of austerity programs.  

Chaos To Deepen

The Greek government was forced to close banks and impose capital controls last week.  But Reuters cited sources saying that the Greek government is expected to extend it by a few more days, as Greece's prime minister went into emergency meetings on Monday.  Greek banking system could collapse without the emergency funding from the ECB.

The No vote has put Greece in uncharted political and economic territory rattling global markets, but things could get much worse in Greece.

Graphic Source: BBC, Bloomberg

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