Merkel Say’s No Vote puts Greece’s Eurozone Future in Doubt

BERLIN – German chancellor Angela Merkel insisted it was up to Greece to spell out how it will safeguard its place in the euro following the clear rejection in Sunday’s referendum of reforms and austerity demanded by creditors.

“With regard to yesterday’s decision by Greek citizens the preconditions for entering into negotiations over a new aid programme do not currently exist,” said Steffen Seibert, spokesman of Ms Merkel, even though the door for talks was “always open”.

“Greece is a member of the euro. It is up to Greece and its government to act so that this can remain the case,” he added. “It depends now on what proposals the Greek government puts on the table.”

Berlin’s tough stance is echoed by most eurozone leaders who are deeply reluctant to take the initiative to prop up Greece’s teetering financial system and secure its euro membership.

But France and, to a lesser degree, Italy have sent more accommodating signals. Ms Merkel is travelling to plot her response in conjunction with her French counterpart François Hollande. They are expected to make a joint statement on Monday evening.

The comments from Berlin came as markets reacted relatively calmly to the No vote in Sunday’s referendum pending a decision by the European Central Bank on whether to provide more emergency loans to Greek banks.

The euro was down 0.7 per cent on the day, to $1.1032, well above the overnight dip to $1.0974.

There are signs of contagion, albeit mild, in the eurozone “peripheral” bond sector, with 10-year Italian and Spanish yields up 9 basis points to 2.33 per cent and 10bp to 2.32 per cent respectively.

The FTSE Eurofirst 300, the pan-European stock index, was well off its lows but still down 0.7 per cent.

Athens sent a conciliatory signal to its eurozone partners earlier on Monday by removing the abrasive Yanis Varoufakis as finance minister.

In a blog called “Minister No More!”, the game theorist turned politician said Alexis Tsipras, Greek prime minister, had wanted him to step down to make it easier to deal with creditors, particularly in the eurogroup of finance ministers.

Greek voters had backed the government’s call to reject a compromise with international creditors, raising serious doubts about Greece’s ability to remain inside the eurozone. The No camp won 61.3 per cent of the vote and was victorious in every region of the country.

Eurozone officials have long complained about what they viewed as Mr Varoufakis’s corrosive effect on bailout negotiations, but Mr Tsipras’s jettisoning of him may have come too late for other eurozone governments.

The referendum result risks plunging Greece deeper into turmoil as it tries to prevent the collapse of a financial system that is rapidly running out of cash.

The combative Mr Varoufakis wrote in his blog that soon after the referendum results he 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.”

Eurozone officials have argued in recent weeks that although Mr Varoufakis was sidelined from direct talks in April he would undermine the more moderate elements in Mr Tsipras’s inner circle every time the two sides narrowed their differences.

Among those who will not be lamenting the departure of Mr Varoufakis is Johan Van Overtveldt, the Belgian economist and writer who has served as the country’s finance minister since October.

“He made things difficult for himself and his fellow ministers both by his behaviour and what he said. To say that it wasn’t nice to hear him more or less saying that his fellow ministers were terrorists is of course an understatement,” Mr Van Overtveldt told Belgian radio on Monday morning.

Officials said Mr Varoufakis’s demand that no new bailout agreement would be signed without debt relief — something some of his Greek counterparts were prepared to concede on as long as it was part of talks on a new, third bailout — made closing a deal to release €7.2bn in aid nearly impossible.

For months, many eurozone leaders saw Mr Tsipras as the more pragmatic and reasonable of the two and attempted to short-circuit Mr Varoufakis’s influence by dealing directly with the prime minister.

But in recent weeks, those same officials have come to view Mr Tsipras as equally intractable — or at least captive to the hardline elements of his governing Syriza party that surround him, making a deal all but impossible with or without Mr Varoufakis.

Stephanie Flanders, chief market strategist for Europe at JPMorgan Asset Management, said: “With this No vote we have moved firmly on to the Grexit side of the decision tree, with a messy Greek exit now more likely than not.”

Rania Antonopoulos, Greek employment minister, said the two sides had 48 hours to resolve the crisis, and that a Greek exit from the eurozone would be “the worst possible outcome”.

While Berlin has been uncompromising towards Athens in the wake of the vote, Paris has been anxious to keep the door open to renewed talks.

On Monday Italian prime minister Matteo Renzi also struck a softer tone, saying on Facebook: “Greece [is] a country that is in an extremely difficult economic and social condition. Tomorrow’s meeting [of eurozone ministers] will have to show a definitive and permanent solution to this emergency.”

Greek banks are fast running out of cash even with capital controls and are unlikely to reopen this week unless the ECB governing council approves an increase in emergency loans.

The ECB may decide it needs the eurozone to guarantee Greek debt if it is to continue supplying emergency loans, as it did in 2012, a decision that would have to be taken by leaders.