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01/10/2016

EU declares Greece in default just before referendum

Euro & Finance

EU declares Greece in default just before referendum

Greek solidarity protest at the British Museum. London, 3 July.

[Jubilee Debt Campaign/Flickr]

Greece was officially declared in default today (3 July), injecting even more urgency into a make-or-break weekend referendum that new polls suggest is too close to call.

The EU fund providing Greece’s financial lifeline declared “an event of default by Greece”.

The European Financial Stability Facility added, though, that it had decided to not immediately demand repayment of its loans — a step that analysts say could have triggered sudden “Grexit”, or Greece’s exit from the eurozone.

The news will come as a fresh shock to Greece’s 11 million people, and will hang over two major, rival rallies taking place in Athens late Friday seeking to galvanise ‘Yes’ and ‘No’ support for Sunday’s referendum.

High stakes

Stakes were already high before the EFSF announcement, with EU leaders warning a ‘No’ in the plebiscite would jeopardise Greece’s place in the 19-nation eurozone.

But Greek Prime Minister Alexis Tsipras rejects that, insisting a ‘No’ result would strengthen his hand and force international creditors withholding bailout funds to drop “humiliating” austerity terms.

Only a last-minute challenge to the legality of the ballot in Greece’s top administrative court, the Council of State, might be able derail it. The court is to give its ruling today.

Confusion, however, is widespread over the very technical question posed in the referendum.

That, and capital controls that have reduced Greeks to lining up at ATMs to make daily withdrawals capped at €60, has prompted many who formerly supported the government to swap sides.

The two latest polls published Friday showed voter intentions were effectively tied.

An Alco institute poll found 44.8% of Greeks intend to vote ‘Yes’ and 43.4% are for ‘No’. A Bloomberg survey for Greece’s Macedonia University was equally split, showing 43% to vote ‘No’ and 42.5% ‘Yes’

European Commission chief Jean-Claude Juncker warned that Greece’s negotiating position with creditors would be “dramatically weakened” in the event of a ‘No’.

Even if the ‘Yes’ vote wins, there would still be “difficult” negotiations ahead, he added.

Confusing question

Greek voters, however, are confronted with a referendum question that has stumped many.

The question reads: “Should the deal draft that was put forward by the European Commission, the European Central Bank and the International Monetary Fund in the Eurogroup of 25 June 2015, and consists of two parts, that together form a unified proposal, be accepted? The first document is titled ‘Reforms for the Completion of the Current Programme and Beyond’ and the second ‘Preliminary Debt Sustainability Analysis’.”

Eurozone officials have firmly said that the “deal” referred to expired on Tuesday — the same day Greece failed to repay a €1.5-billion repayment to the IMF, becoming the first developed country to ever do so.

On 20 July, Greece looks likely to be unable to repay another €3.5 billion euros owed to the ECB.

Some voters who initially backed the government have swapped sides ahead of Sunday’s ballot.

“I was going to vote ‘No’ because I think the Greek people are being treated with contempt. But Tsipras has made the situation so much worse, it’s his fault the banks are closed,” said an Athens shop assistant Suzanna Alizoti.

Despair

Greek pensioners without bank cards have been limited to one €120 over-the-counter withdrawal, prompting despair among many.

In Greece’s second-biggest city of Thessaloniki, one retired man unable to withdraw his €120 crumpled to the ground, scattering his papers. A bank manager quickly resolved the problem.

In Athens, another pensioner, Kostas, was regularly withdrawing his and wife’s daily euro limits from ATMs for fear they might be seized by the government or converted to drachmas. “My money is safer at home,” he said.

Many cash machines were running short of denominations, allowing only the withdrawal of a €50 note.

Government future

Varoufakis has said he would step down as finance minister if a ‘Yes’ vote carried the day, and the rest of the government “may very well” do the same.

But Tsipras has been ambiguous, telling Greek television late Thursday he would respect the referendum’s result and take the necessary steps “set out in the constitution”.

As the clock ticked down to the fateful vote, the IMF said yesterday Greece would need €60 billion more in bailout money to get through the next three years. It also cut the country’s 2015 growth forecast to zero from 2.5%.

Europe’s main stock markets slipped during Friday trading, as all eyes were riveted on Greece’s referendum and what that might mean to investors at the beginning of next week.

“The vote seems tight,” said VTB Capital economist Neil MacKinnon.  “A ‘No’ vote increases the chances of a Grexit as the ECB would pull the plug on the Greek banks,” he said.

“A ‘Yes’ vote would likely result in the resignation of the Greek government, though it is not clear that this would necessarily result in a more creditor-compliant Greek administration that would sign up to the creditors’ proposals quickly.”