Talks will resume but if they will lead to any sort of financial deal is anyone’s guess
Q: What happens next? A: Good question. Greek prime minister Alexis Tsipras has said he will return to the negotiating table with the creditors with a mandate to demand a fresh deal.
He has suggested that an agreement could be hammered out in just 48 hours – just in time for the banks to reopen as promised tomorrow.
The country’s creditors – the eurozone, the European Central Bank (ECB) and the International Monetary Fund (IMF) – however have been adamant that a No vote means the end of negotiations.
That in turn would mean the withdrawal of the emergency financial lifeline from the ECB which has been keeping the Greek banks afloat. Q: So if the creditors refuse to negotiate, then what? A: We are entering uncharted waters. There is no legal mechanism for exiting the eurozone, and some Greek politicians have suggested it could simply refuse to go.
However, in practice the government would be forced to start printing its own currency in order to pay public sector salaries, shore up the financial system, and keep the country functioning.
Economists do not see much
light at the end of the tunnel for the Greek people, who have already endured five years of austerity.
One analysis suggested that an economy which has already shrunk by 25 per cent since 2008 could contract by another 25 per cent.
Tourists could be put off by fears of chaos, severing a vital flow of income, and business life will grind to a halt. There are fears of an humanitarian disaster and social unrest as stocks of medicines and fuel run out. Q: What would it mean for the rest of the eurozone? A: Some have suggested that Grexit could be the moment when closer integration gives way to disintegration. There are likely to be huge losses for the ECB and institutions in eurozone countries that have lent to Greek banks.
Doubts about the survival of the currency project could drive down its value and hamper already sluggish economic growth. Q: Would Britain suffer as well? A: The UK is outside the eurozone and is not liable for any losses by the ECB. British banks, and financial institutions also have very limited direct exposure to Greek debt.
Interest rates on government borrowing could fall and the value of sterling increase as investors seek a “safe haven” from the chaos.
But wider “contagion” among financial institutions, falling stock markets and an economic slowdown in the eurozone could be very damaging to the UK’S prospects.
Prime Minister David Cameron, Chancellor George Osborne and Bank of England Governor Mark Carney are holding talks on the potential dangers and finalising contingency plans. Q: Could there still be a deal? A: The resignation of combative Greek finance minister Yannis Varoufakis and hints from the IMF that it could consider some debt relief may have opened a crack in the wall.
But any agreement must be quick, as banks could start collapsing immediately if they are forced to open again tomorrow without a new line of credit.
The eurozone’s two biggest players – German Chancellor Angela Merkel and French President Francois Hollande – are set to meet in Paris to discuss the way forward.
Mrs Merkel has made no secret of her exasperation with the Greek negotiating tactics, but will she want to go down in history as the leader who presided over the break-up of the single currency?