Greece, world face dim future
‘OXI’ WINS: ATHENS IN UNCHARTERED TERRITORY Greeks have voted overwhelmingly against Europe’s austerity measures, opening up new vista of possibilities.
By heeding their government’s advice and voting “No” in the weekend’s referendum, Greek citizens have sent an unambiguous message: they are demanding the rest of Europe acknowledge their distress.
But only a handful of European leaders seem willing to listen and even fewer appear willing to deliver the sort of relief Greece needs.
Here are 10 consequences of the vote that could unfold in the next few days:
The victory of the “No” camp – with more than 60% of the vote, according to preliminary returns – will initially lead to a general selloff in global equities, along with price pressures on bonds issued by Greece, other peripheral euro zone economies and emerging markets.
European politicians will urgently seek to regain the initiative: Chancellor Angela Merkel of Germany and President Francois Hollande of France are meeting in Paris to work on a response. Getting past the confl ict that preceded the referendum is likely to be difficult, given the mistrust and damaging accusations thrown about.
The horrid conditions in Greece will get a lot worse before they improve. Without huge emergency assistance from the European Central Bank – a decision that faces long odds – Athens will find it hard to get money to the country’s autobanks, let alone re-open the banks.
As hoarding increases, shortages of goods, including fuel and food, will intensify. Capital and payments controls will be tightened. The government will struggle to pay pensioners and civil servants.
Athens will be under pressure to issue some type of IOUs, a parallel currency, quoted domestically at a discount to the euro.
The ECB will have to roll out measures to contain regional contagion, including expanding the current programme of large-scale purchases of securities, weakening the euro. Lending institutions will prepare for serial Greek defaults.
All parties involved will find themselves slipping into their Plan B mode. This transition will probably be much more traumatic for Greece than for the rest of Europe.
Europe has the instruments and institutions to limit contagion, but this will require action aimed at completing a banking union and making progress on fiscal integration.
It is doubtful Greece can restore its status as a full member of the euro zone; it is at high risk of becoming a failed state. Europe needs to ensure Greece’s exit doesn’t also result in its dissociation from the larger European Union.
Finally, expect an explosion of blame: a series of broken promises by several Greek governments was made worse by political stubbornness, poor analysis and inconsistent follow-through by Europe. – Bloomberg