Greece "no" vote increases chance of eurozone exit, say analysts

6 Jul 15

Voters in Greece have rejected the terms of proposed extension to the country’s euro bailout deal in a nationwide referendum.

Some 61.3% of Greeks voted “no” on whether to accept the proposals put forward by the troika – the International Monetary Fund, the European Central Bank and the European Commission – for spending cuts and economic reforms in return for unlocking the final €7.2bn tranche of bailout funds.

No agreement was reached between Greece’s government and the creditors despite months of negotiations, leading to Prime Minister Alexis Tsipras to put the last offer to a popular vote.

The lack of a deal led to the country missing a €1.5bn debt repayment to the IMF on June 30, becoming the first developed country to fall into arrears with the fund.

Ahead of the poll, Tsipras called on Greeks to vote “no”, saying the bailout terms were subjecting Greeks to “humiliation and blackmail”.

He added that a “no” vote would give him the mandate to negotiate a better deal for Greece within the eurozone.

In a televised address late on Sunday, he said, Greeks had voted for a “Europe of solidarity and democracy”.

“As of tomorrow, Greece will go back to the negotiating table and our primary priority is to reinstate the financial stability of the country,” he continued.

“This time, the debt will be on the negotiating table,” he said, adding that an International Monetary Fund assessment published this week “confirms Greek views that restructuring the debt is necessary”.

However, eurozone officials warned that it could see the country ejected from the currency union.

Jeroen Dijesselbloem, who is president of the Eurogroup, which consists of the eurozone’s 19 finance ministers, said the result in Sunday’s referendum was “very regrettable for the future of Greece”.

“I take note of the outcome of the Greek referendum,” he said. “For recovery of the Greek economy, difficult measures and reforms are inevitable. We will now wait for the initiatives of the Greek authorities. The Eurogroup will discuss the state of play on Tuesday 7 July [in a summit in Brussels].”

Following the vote, Greek finance minister Yanis Varoufakis announced he had resigned.

Following the victory for the no side, Varoufakis – who has been a controversial figure in the negotiations – said in a statement it has been made clear to him that some “Eurogroup participants” did not want him involved in further talks.

He said his absence from the meetings was an “idea that the prime minister judged to be potentially helpful” in reaching a bailout agreement.

“For this reason I am leaving the Ministry of Finance today,” he said. “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.”

Analysts warned that the rejection of the bailout terms meant it was now “a very real possibility” that the country would leave the euro.

Nina Skero, an economist at the Centre for Economics and Business Research, said both the country and the currency area were now in “uncharted territory”.

She added: “A series of meetings in the coming weeks, including a summit of Eurozone leaders announced for this Tuesday, will make it more clear what the economic future of the country and, in fact, the entire currency bloc holds.”

  • Judith Ugwumadu
    Judith Ugwumadu

    Judith writes about public finance, public services and economics across Public Finance International and Public Finance. She previously undertook reporting stints at Financial Adviser, Global Security Finance and The Sunday Express.

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