Greece says no to austerity package. Eurozone politicans consider the options but split between hardliners and compromisers

5th July 2015


Greece has voted No in its referendum on accepting the Troika’s austerity measures, though the deal had already been withdrawn by Greece’s creditors.

The Greek interior ministry suggests that nearly 62% of ballots have voted “No” against 38% voting “Yes”.

Greece’s governing Syriza party had campaigned for a “No” on the basis that the bailout terms were humiliating but with political opponents warning that this could see Greece ejected from the eurozone.

“Today we celebrate the victory of democracy, but tomorrow all together we continue and complete a national effort for exiting this crisis,” Greek Prime Minister Alexis Tsipras adding that this was “not a mandate against Europe, but a mandate to find a sustainable solution that will take us out of this vicious circle of austerity”.

Germany and France are pushing for a summit to discuss the situation on Tuesday. But the creditors’ arguments were complicated by an IMF report  published late last week which suggested that Greece would require massive debt forgiveness.

The IMF suggested that in addition to needing a new three-year bailout worth some €60 billion, Greece should have the maturities on its existing loans doubled, from 20 to 40 years. If the economy did not recovery a massive amount of debt would have to be written off to the tune of €53 billion.

However Europe’s politicians appear to badly split on the issue.

Poland’s prime minister Ewa Popacz said on Sunday that if final results in Greece’s bailout referendum are confirmed as “no,” she believes that Greece will have no choice but to leave the eurozone.

Germany’s vice chancellor and economy minister Sigmar Gabriel said that the Greek prime minister had “torn down the last bridges, across which Europe and Greece could move toward a compromise.”

“By saying no to the eurozone’s rules, as is reflected in the majority ‘no’ vote, it’s difficult to imagine negotiations over an aid package for billions.”

The leader of socialist group in the European Parliament Gianni Pittella says his group “expects the Greek government to come back to the negotiations with a renewed responsible attitude”. But he added, it will also be time for some member states and ministers to stop with unacceptable rigidity, national selfishness and domestic political games.”

Looking at the implications for investing and for currencies, Dan Brocklebank, manager of the Orbis Global Equity Fund says: “Situations like these are never pleasant for investors to stomach in the short term but they rarely have a long-term effect on the vast majority of individual businesses. For example, it won’t change how many mobile phones Samsung sells or how much shopping people do on eBay – both of which are held in our funds.

“It’s also important to remember that times of panic like these can also create opportunities for investors with a long-term perspective. The fundamentals for, say, Samsung or eBay might not be affected, but we might find that we can buy more of our favourite shares at better prices when everyone is panicking about Greece.

“In this sense, being “greedy when others are fearful” can serve investors well. As contrarian investors, we assess both the risk and the reward of stocks that are out of favour and look for an appealing trade-off. Thus far, we haven’t been tempted by any opportunities in Greece but that’s not to say we won’t find some in the near future.”

Andy Scott, associate director of FX advisory services at foreign currency specialists, HiFX, said: “With indications that Greeks have voted ‘no’ in the referendum, the country looks set to be plunged into grave financial uncertainty. Greece’s stay of execution may at last be over and it will be forced to reintroduce a national currency.

“The short term impact for the euro is likely to be a fall across the board when markets begin trading, though since it won’t come as a complete surprise, the damage may be limited slightly to just a couple of percentage points. The medium term picture is less clear since no mechanism exists for a country to exit the single currency and so a lot will depend on how well they manage a ‘Grexit’.

“For anyone holidaying in Greece this summer you may well experience a saving on your holiday money since the Euro could weaken, and a return to a national currency would likely lead to a significant devaluation.

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