Greek PM hints he won’t pursue further austerity

Greek Prime Minister Alexis Tsipras says he will respect the outcome of an upcoming referendum on his country’s economic future if voters back a new round of European austerity measures that he opposes. But Tsipras said his far-left government will not be the one to carry out those new reforms, which European creditors are demanding from Athens in exchange for billions of dollars in new bailout money.

Tsipras spoke late Monday on national television, as anti-austerity protesters marched in Athens and speculation grew that the government will formally default Tuesday on a $1.8 billion loan repayment due to the International Monetary Fund. A default would set the stage for a possible Greek exit from the 19-nation euro currency bloc.

In Paris, European Central Bank board member Benoit Coeure told the French financial daily Les Echos that a Greek exit from the euro zone “can, unfortunately, not be excluded anymore.”

World markets tumbled Monday as the Greek public awakened to shuttered banks and sharp new limits on withdrawals from sidewalk cash machines. The Athens stock exchange, like the cash-strapped banks, is closed for six days until referendum results are tallied.

Stocks in Asia, Germany and France plunged three per cent or more, while the New York Stock Exchange was down almost two per cent near the end of trading.

Additionally, the Standard & Poor’s financial services company cut Greece’s credit rating further into “junk” status.  It also said there is a 50 per cent chance the country will become the first to exit the euro zone in the 16-year history of the currency.

European Union chief executive Jean-Claude Juncker and British prime minister David Cameron both warned Monday that a Greek vote against austerity would mean that Greece wants to divorce itself politically from Europe.

“A ‘no’ [vote] would mean, regardless of the question posed, that Greece had said ‘no’ to Europe,” Juncker said in Brussels. Cameron said he would “find it hard to see” how a negative vote “is consistent with staying in the euro.”

Greece broke off negotiations with its creditors over the weekend and there was no sign of new talks. Tsipras then called on voters to reject more European austerity demands on July 5.

Long lines and uncertainty
At ATMs across Athens, there were long lines to withdraw cash. The doors to the banks will remain firmly closed for the rest of the week. Arguments broke out as the waiting crowds debated their economic fate.

Pensioners lined up early at bank branches, hoping they would be able to access their funds through the cash machines, but they were not successful. The finance ministry said pensions were exempted from the new restrictions and said it would explain later how pension payments would be disbursed.

One Greek office worker, Vicky Peraki, took a stoic view of the country’s financial plight. “We need to stay calm. We can live with less until the situation is resolved,” she said. “Why should we panic? There’s no reason for that. At some point all this will end.”

Capital controls were inevitable after the European Central Bank decided not to continue the liquidity lifeline it’s been giving Greek banks, said economist Ioannis Kokkoris of Queen Mary University of London.

“Apparently banks have between one and three billion (euro) left. A billion went out on Friday, a billion on Saturday, so if they did not put any capital controls, banks would be completely empty,” said Kokkoris.

Early polls show a small majority in favour of agreeing to the deal offered by the EU.

Kokkoris thinks the next few days will be crucial. “If we see any kind of social unrest, I think that will definitely swing the vote to a ‘yes’. If things remain calm with the banks, if salaries are paid on time, if pensions are paid on time, then we still will be looking at a very close call,” said Kokkoris.

‘Who comes after Greece?’
Greeks must choose between more austerity with no end in sight – or the unknown of leaving the euro currency, said Dionyssis Dimitrakopoulos of Birkbeck College, University of London. “What is currently on offer does not include what I think, psychologically at least, Greeks need, and what the economy needs – which is a huge haircut. The country cannot repay the debts that it has,” he said.

Borrowing costs have all increased in recent days for other debt-laden economies in Europe – including Spain, Portugal and Italy. There are risks beyond Athens, added Dimitrakopoulos. “Italy has had primary budgetary surpluses for many years. Yet its debt has not gone down. So if I were [Italian prime minister] Matteo Renzi I would think, ‘Who comes after Greece?’” he said.

A US state department official said the American embassy in Greece is preparing to help US citizens who may be in “distress” in the country. The official estimated that about 100,000 Americans may be in the country, but said some may have dual citizenship. US treasury secretary Jack Lew has urged Greece and its creditors to reach a broader deal and finalise details later.

Tsipras went on national television Sunday to announce the six-day bank closures and cash restrictions, hours after the European Central Bank, another Greek creditor, said it would not continue an emergency loan program that had allowed Greek banks to remain open in recent weeks.