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Greece debt crisis: Will 'No' vote lead to Grexit? Greece debt crisis: Will 'No' vote lead to Grexit?
(about 1 hour later)
More than 60% of Greeks have voted to reject eurozone cash-for-reform proposals, although Prime Minister Alexis Tsipras says it is not a mandate against Europe.More than 60% of Greeks have voted to reject eurozone cash-for-reform proposals, although Prime Minister Alexis Tsipras says it is not a mandate against Europe.
And yet several European leaders had warned that a "No" vote would mean a decision to leave the eurozone.And yet several European leaders had warned that a "No" vote would mean a decision to leave the eurozone.
So what happens next? Will Greeks remain in the euro or lurch out of the single currency - which has come to be known as Grexit?So what happens next? Will Greeks remain in the euro or lurch out of the single currency - which has come to be known as Grexit?
What are the scenarios?What are the scenarios?
There are at least three - but at the heart of each of them is what will happen to Greek banks and to the emergency cash funding provided by the European Central Bank (ECB).There are at least three - but at the heart of each of them is what will happen to Greek banks and to the emergency cash funding provided by the European Central Bank (ECB).
Scenario one: Failed deal leads to GrexitScenario one: Failed deal leads to Grexit
This is now seen by many as the most likely option, even though Mr Tsipras was adamant that the result was "not a mandate of rupture with Europe, but a mandate that bolsters our negotiating strength to achieve a viable deal".This is now seen by many as the most likely option, even though Mr Tsipras was adamant that the result was "not a mandate of rupture with Europe, but a mandate that bolsters our negotiating strength to achieve a viable deal".
The problem is that many of his European partners see it as the end of the road and the closure of Greek banks requires a speedy decision.The problem is that many of his European partners see it as the end of the road and the closure of Greek banks requires a speedy decision.
German ministers as well as the leaders of Italy and France all saw the vote as a referendum on staying in or out of the euro. Germany's Deputy Chancellor Sigmar Gabriel said on Sunday night that the Greek PM had "torn down the last bridges, across which Europe and Greece could move toward a compromise".German ministers as well as the leaders of Italy and France all saw the vote as a referendum on staying in or out of the euro. Germany's Deputy Chancellor Sigmar Gabriel said on Sunday night that the Greek PM had "torn down the last bridges, across which Europe and Greece could move toward a compromise".
There will be a flurry of meetings: the ECB governing council on Monday, a summit of eurozone leaders and a meeting of eurozone finance ministers on Tuesday. But the mood is bleak. Eurogroup President Jeroen Dijsselbloem says it's now up to Greece to come up with the "difficult measures and reforms" needed and Polish PM Eva Kopacz summed it up as "probably a new stage towards (Athens) leaving the eurozone". There will be a flurry of meetings culminating in a summit of eurozone leaders on Tuesday. But the mood is bleak. Eurogroup President Jeroen Dijsselbloem says it's now up to Greece to come up with the "difficult measures and reforms" needed and Polish PM Eva Kopacz summed it up as "probably a new stage towards (Athens) leaving the eurozone".
Scenario two: Greek bank collapse leads to Grexit... or a dealScenario two: Greek bank collapse leads to Grexit... or a deal
Overshadowing any political deal is the state of Greece's banks, which were shut on 29 June when the ECB froze their lifeline.Overshadowing any political deal is the state of Greece's banks, which were shut on 29 June when the ECB froze their lifeline.
The Greek government promised a "No" vote would prompt the banks to reopen on Tuesday. But the ECB is unlikely to raise their emergency cash support (Emergency Liquidity Assistance) from €89bn (£63bn; $98bn) and the banks' survival is being numbered in days. One potential option for the banks would be to reopen with a parallel currency before the revival of Greece's former currency, the drachma. The Greek government is hoping to reopen the banks later this week. But the ECB is unlikely to raise its emergency cash support (Emergency Liquidity Assistance) from €89bn (£63bn; $98bn) and the banks' survival is being numbered in days.
Peston: Greek banks days from running out of cashPeston: Greek banks days from running out of cash
The threat of Greece's economy going into freefall could persuade the EU to recapitalise the banking system. But that would have knock-on political consequences for other eurozone countries such as Spain, where the political mainstream is facing a stiff electoral challenge from anti-austerity parties.The threat of Greece's economy going into freefall could persuade the EU to recapitalise the banking system. But that would have knock-on political consequences for other eurozone countries such as Spain, where the political mainstream is facing a stiff electoral challenge from anti-austerity parties.
"Rejection of reforms by Greece cannot mean that they will get the money more easily," tweeted Slovak Finance Minister Peter Kazimir."Rejection of reforms by Greece cannot mean that they will get the money more easily," tweeted Slovak Finance Minister Peter Kazimir.
And should the eurozone continue what looks like throwing good money after bad? Greece's biggest creditor, the eurozone rescue fund EFSF, has already threatened to call in the €130.9bn owed by the Athens government, because of its failure to pay its June debt repayment to the IMF.And should the eurozone continue what looks like throwing good money after bad? Greece's biggest creditor, the eurozone rescue fund EFSF, has already threatened to call in the €130.9bn owed by the Athens government, because of its failure to pay its June debt repayment to the IMF.
One potential option for the banks would be to reopen with a parallel currency before the revival of Greece's former currency, the drachma.
Another would be to place Greece in a type of eurozone quarantine, where it would use the euro but not be a fully-fledged part of it, similar to Kosovo and Montenegro.
Greece could have a parallel currency, with the euro used for transactions and the government paying salaries and pensions in a separate Greek-style euro. Devaluation of the parallel currency would then be inevitable, but it would not be Grexit.
Scenario three: EU leaders agree deal and avert bank collapseScenario three: EU leaders agree deal and avert bank collapse
It appears unlikely, but the Greek Prime Minister has provided the framework for a deal and the reforms he agreed to days before the referendum were not a far cry from what was being demanded by Greece's eurozone and IMF creditors. It appears unlikely, but a deal could emerge if eurozone partners accept revamped Greek proposals.
The prime minister's decision to dispense with Finance Minister Yanis Varoufakis, whose colourful rhetoric infuriated eurozone colleagues, suggests he is taking a more diplomatic approach.
And the reforms which Mr Tsipras agreed to days before the referendum were not a far cry from what was being demanded by Greece's eurozone and IMF creditors.
The difference was that he wanted a third bailout worth €29.1bn, not the final slice of the second that was on offer, and four times its size at that.The difference was that he wanted a third bailout worth €29.1bn, not the final slice of the second that was on offer, and four times its size at that.
His decision to dispense with Finance Minister Yanis Varoufakis, whose colourful rhetoric infuriated eurozone colleagues, suggests he is taking a more diplomatic approach.
It is not just money that Mr Tsipras will be after in return for negotiated economic reforms. He will come armed with a report from the IMF, released just three days before the referendum, which said Greece needed significant debt relief, as well as closer to €50bn over three years.It is not just money that Mr Tsipras will be after in return for negotiated economic reforms. He will come armed with a report from the IMF, released just three days before the referendum, which said Greece needed significant debt relief, as well as closer to €50bn over three years.
For the banks to be recapitalised, Greece would need access to the eurozone's permanent bailout fund, the European Stability Mechanism (ESM). At this stage it is hard to imagine that being given. He will be looking to reduce Greece's debt burden by as much as 30%, a so-called haircut for creditors.
And then, for the banks to be recapitalised, Greece would need access to the eurozone's permanent bailout fund, the European Stability Mechanism (ESM). At this stage it is hard to imagine that being given.
Did Tsipras change course?Did Tsipras change course?
Why are Greece's finances in such dire straits?Why are Greece's finances in such dire straits?
Since 2010, the Athens government has been reliant on two EU-IMF bailouts totalling €240bn. Greece's last cash injection from international creditors was back in August 2014, and when the eurozone agreement ran out on 30 June, Mr Tsipras's government also failed to make a key debt repayment to the IMF of €1.5bn.Since 2010, the Athens government has been reliant on two EU-IMF bailouts totalling €240bn. Greece's last cash injection from international creditors was back in August 2014, and when the eurozone agreement ran out on 30 June, Mr Tsipras's government also failed to make a key debt repayment to the IMF of €1.5bn.
Technically, the IMF says Greece is "in arrears" but the EFSF says that constitutes a default.Technically, the IMF says Greece is "in arrears" but the EFSF says that constitutes a default.
Greece's debts now total more than €300bn - around 180% of its GDP.Greece's debts now total more than €300bn - around 180% of its GDP.
Not only are the banks shut, Greeks are limited to €60 cash withdrawals per day.Not only are the banks shut, Greeks are limited to €60 cash withdrawals per day.
Although the government has stopped paying its debts, it has to find €2.2bn a month in public sector salaries, pensions and social security, and the bank restrictions mean its tax revenues are drying up.Although the government has stopped paying its debts, it has to find €2.2bn a month in public sector salaries, pensions and social security, and the bank restrictions mean its tax revenues are drying up.
Credit rating agencies have lowered the banks to near junk status. Public sector bodies - including hospitals - have already been asked to surrender any cash reserves they have.Credit rating agencies have lowered the banks to near junk status. Public sector bodies - including hospitals - have already been asked to surrender any cash reserves they have.
What are capital controls?What are capital controls?
So how would Grexit work?So how would Grexit work?
There is no precedent for a country to leave the euro and no-one knows how it might happen. But the ECB's decision to freeze liquidity to Greek banks felt like an initial step, as free flow of credit is a key tenet of the single currency.There is no precedent for a country to leave the euro and no-one knows how it might happen. But the ECB's decision to freeze liquidity to Greek banks felt like an initial step, as free flow of credit is a key tenet of the single currency.
The trouble is the damage already done to the banks. Tens of billions of euros have already been withdrawn from private and business accounts and capital controls have left Greeks unable to withdraw large sums of cash.The trouble is the damage already done to the banks. Tens of billions of euros have already been withdrawn from private and business accounts and capital controls have left Greeks unable to withdraw large sums of cash.
The risk is that a messy default could cause even more harm to the Greek economy.The risk is that a messy default could cause even more harm to the Greek economy.
"A forced default is where the coffers are empty, you stop paying employees and say, 'We're using all our resources to pay the hospital bills'," says Prof Iain Begg of the London School of Economics."A forced default is where the coffers are empty, you stop paying employees and say, 'We're using all our resources to pay the hospital bills'," says Prof Iain Begg of the London School of Economics.
Greece would suffer instant devaluation and inflation. It could end up a pariah in the international markets for years, much like Argentina in 2002, warns Prof Begg.Greece would suffer instant devaluation and inflation. It could end up a pariah in the international markets for years, much like Argentina in 2002, warns Prof Begg.
Tourism - one of Greece's main earners - would be hit hard, dealing a hammer blow to an ailing economy.Tourism - one of Greece's main earners - would be hit hard, dealing a hammer blow to an ailing economy.
Some economists believe a return to the drachma could eventually benefit the economy, but it is difficult to see anything positive in the short term.Some economists believe a return to the drachma could eventually benefit the economy, but it is difficult to see anything positive in the short term.
Potentially the best option would be for Greece to pursue a "managed default", where a parallel currency could operate with civil servants paid with IOUs and eurozone institutions would stave off a fully-fledged crisis.Potentially the best option would be for Greece to pursue a "managed default", where a parallel currency could operate with civil servants paid with IOUs and eurozone institutions would stave off a fully-fledged crisis.
Greece would struggle to find creditors outside Europe - SchaeubleGreece would struggle to find creditors outside Europe - Schaeuble
Could this instability spread across Europe?Could this instability spread across Europe?
The European Union has worked hard to cordon off the banking difficulties of one member state from the other 27. But the Greek debt crisis is widely seen as the biggest threat to the eurozone so far.The European Union has worked hard to cordon off the banking difficulties of one member state from the other 27. But the Greek debt crisis is widely seen as the biggest threat to the eurozone so far.
The IMF has warned that "risks and vulnerabilities remain" and a sharp fall on markets worldwide is widely expected.The IMF has warned that "risks and vulnerabilities remain" and a sharp fall on markets worldwide is widely expected.
Grexit could leave the ECB with losses of €118bn lent to Greek banks and €20bn spent on buying up Greek government bonds.Grexit could leave the ECB with losses of €118bn lent to Greek banks and €20bn spent on buying up Greek government bonds.
As a central bank, the ECB could simply print the money to recapitalise itself, but that is considered anathema to Germany.As a central bank, the ECB could simply print the money to recapitalise itself, but that is considered anathema to Germany.
But there is more at stake than the markets. Several governments facing anti-euro movements are watching developments in Greece nervously.But there is more at stake than the markets. Several governments facing anti-euro movements are watching developments in Greece nervously.
Spanish Prime Minister Mariano Rajoy said last week that Greek exit from the euro would be a "negative message that euro membership is reversible".Spanish Prime Minister Mariano Rajoy said last week that Greek exit from the euro would be a "negative message that euro membership is reversible".
Greeks see cash run out in undeclared defaultGreeks see cash run out in undeclared default