Greece in limbo,
Merkel rebuffs Tsipras offer to begin new talks
• Greek Prime Minister Alexis Tsipras and his creditors sparred heading into Sunday’s referendum on austerity, deepening Greece’s financial misery.
As rationing of pensions began in the first week of capital controls, a poll showed a narrow majority going against the government’s wishes in order to keep the euro.
A late compromise bid by Tsipras, who’s urging citizens to vote “no,” was roundly quashed by the rest of the eurozone, meaning negotiations will have to wait until after the July 5 vote.
The battle lines ahead of the vote now appear immovable as Greeks adjust to their new reality with no prospect of their economic woes ending any time soon. The political posturing, along with the expiry of its bailout deal and a missed payment to the International Monetary Fund, masked the desperation as the economy sputtered and cash ran low.
“The clock cannot be simply set back to where it was Friday night before Tsipras broke off the talks,” Holger Schmieding, an analyst at Berenberg Bank, wrote to clients. “A deal is still possible, but it would require more than just this letter.”
European stocks and bonds rose on the thaw in Athens. The Stoxx Europe 600 index rallied 2.2 per cent. Yields on debt from Italy, Spain and Portugal all fell and the euro weakened 0.8 per cent to below US$1.106.
The Eurosystem, which comprises the ECB and the central banks of eurozone nations, has more than 500-billion euros (US$554 billion) in buffers to deal with the aftermath of a Gree default or exit from the eurozone, an analyst at Royal Bank of Canada said. That compares with Greek liabilities of about 100-billion euros, RBC estimates, while cautioning that a Greek exit could undermine the region’s economy beyond its direct financial linkages.
“Official-sector exposures to Greece do not appear to be insurmountable in the event of a Greek exit,” said Peter Schaffrik, head of European rates strategy at RBC in London. “There is enough capital and buffers to cover any potential losses. Central banks in general can operate with negative equity.”
In the letter to European Commission president Jean Claude Juncker, European Central Bank president Mario Draghi and International Monetary Fund managing director Christine Lagarde, Tsipras resisted their demands on pensions and tax discounts to Greek islands.
Following reports of his letter to his creditors, Tsipras addressed the nation to quash speculation swirling on social media that he might cancel the referendum. Instead, he doubled down, reiterating his call to reject austerity. He said it would strengthen his bargaining position.
“Come Monday, the Greek government will be at the negotiating table after the referendum, with better terms for the Greek people,” Tsipras said in a Twitter message posted as he spoke on national television. “A popular verdict is much stronger than the will of a government.”