Greece's bailout talks hinge on referendum today

ATHENS, Greece -- After months of talks among officials in Europe, the fate of a bailout for Greece shifted into the hands of the Greek people in a referendum today seeking approval of a bailout proposal from the country's creditors.

photo

AP

A woman waits at a bus stop in Athens, Greece, on Saturday next to a poster reading, “Yes to Greece, Yes to Euro.”

photo

AP

People stand in line Saturday while waiting to use the ATMs at two banks in Athens, Greece. Bank customers are limited to daily cash withdrawals of less than $70.

Greeks started casting ballots early today in the vote that asks them to answer either "yes" or "no" to accepting rescue loans -- in exchange for more austerity measures -- from the European Union, the International Monetary Fund and the European Central Bank, an agreement that expired at the end of June. Polling stations are open until 7 p.m. Athens time.

A no vote in the referendum, rejecting the creditors' proposal, would leave Greece without a bailout program and no obvious prospect of one.

A yes vote would only open the door to new talks, perhaps with a new government, which may require time the banks don't have. Greek banks have about $1.1 billion of reserves remaining, enough to last through the end of Monday or Tuesday morning, the head of the National Bank of Greece, Louka Katseli, told reporters Friday.

On Saturday, the day before the vote, neither side was permitted to campaign. But officials in Greece and across Europe managed to work in some final comments as they sought to sway a population that polls show is split evenly between yes and no.

In an interview published Saturday, Greek Finance Minister Yanis Varoufakis accused the country's European creditors of "terrorism," saying they hope to scare Greek voters into defying their government and supporting a bailout program.

"Why have they forced us to close the banks? To frighten people," Varoufakis told the Spanish newspaper El Mundo. "And when it's about spreading terror, that is known as terrorism."

Varoufakis told El Mundo that he did not believe Greece's creditors were serious about kicking the country out of the eurozone, as they have repeatedly threatened.

"It's too much money, and I don't believe Europe could allow it," he said, estimating the toll for the continent at more than $1 trillion.

European officials have scoffed at such claims, with German Finance Minister Wolfgang Schaeuble reiterating Saturday that any new talks would be "very difficult."

Schaeuble insisted the collateral damage to other European countries from a Greek meltdown would be limited. But in a potential softening of what had been a relentlessly hard-line stance, he told the German paper Bild that Greece may only "temporarily" leave the eurozone even if the country rejects Europe's bailout offer.

Greece and its European creditors have been on a collision course since January, when Greek voters elected the leftist Syriza party on a platform of ending the strict austerity imposed in the country as a condition for bailouts.

Greece's standoff with lenders saw the country default on debts last week, after Prime Minister Alexis Tsipras walked away from recent negotiations and called the surprise referendum, and lose access to billions of euros after the bailout deal expired.

The immediate consequence was that banks shut and the government imposed capital controls, with ATMs dispensing a maximum of less than $70 per customer. Food banks and hospitals reported shortages of basic supplies.

Saving the banks

The European Central Bank says it can calm any regional market turmoil that follows Greece's referendum today. But saving the country's banking system will be harder.

With two asset-buying programs, international swap lines, backstops for eastern Europe and cash tenders in place, the central bank has a wide variety of tools at hand should bond yields surge or money markets freeze after the vote. That's a possible outcome if voters reject the terms of a European Union-led bailout.

Yet even if the Greek people back the EU offer, the country's lenders won't be able to reopen soon unless the central bank approves more liquidity. To do that, monetary-policy officials have to trust that the government will be able to strike a new deal.

"The linkages to the rest of the euro area are relatively small, though some of the more vulnerable countries may lie in Eastern Europe and to help there is definitely in the ECB's remit," said James Nixon, chief European economist at Oxford Economics in London. "None of that helps Greece, though. We're in deep, deep water there."

The central bank's Governing Council is due to discuss liquidity support for Greek banks on Monday. Central bank Vice President Vitor Constancio said Friday that "the only thing that matters" is the chance of a deal between Greece and its creditors.

In the meantime, officials have prepared for the worst. The central bank now has more instruments at its disposal to contain ripples that threaten the stability of other banks, as well as legal backing from the European Court of Justice to use them as it sees fit. It has said it's ready to do so.

Benoit Coeure, executive board member of the European Central Bank, did say last week that the European bank could develop "new instruments" to rein in market volatility but didn't speculate what they might be.

The European Central Bank can bolster the amount of emergency assistance it gives Greek lenders, or it can pull the plug, a decision that would immediately cause the banking sector to collapse.

That prospect terrifies voters who support a bailout.

"'No' will bring about a catastrophe," said John Seretis, 39, a pharmaceuticals distributor. "'Yes' will bring about many difficult things. But at least we'll be in the euro."

Aris Spiliotopoulos, a 22-year-old who is launching a tourism startup, said he believes the vote is about whether Greece chooses to stay in the eurozone and ultimately whether the country opts to stay in the EU.

"I am voting 'yes' because I believe that my future and even my kids' future, in 20 or 30 years from now, is in the eurozone and the European Union," Spiliotopoulos said.

Gym teacher Alkiviadis Kotsis said he is voting no because the country and its people can't take more austerity.

"No matter how many loans you take, you cannot get by if you don't produce things. You can't do anything," he said.

Kyriakos Roussopoulos, a 41-year-old chef, agreed. He said the government should be willing to blaze its own path if the country's creditors won't yield.

"We can make a new history," he said. "We Greeks say that with an olive tree and a ship, we can build everything again from scratch. I may be poor for the next 10 years, but my kids will be better off."

Uncertainty for Tsipras

Whatever Greeks decide in the referendum, the Tsipras administration's hold on power may be shakier than the prime minister has calculated, analysts say.

A no vote could plunge Tsipras' position into uncertainty if negotiations drag on with lenders. Without a quick deal, banks are expected to stay shuttered to keep their reserves from running dry.

"A deteriorating import-dependent economy will provoke a rapid decline in public support for the government and fresh elections may become inevitable, but this will take time," said Dimitri Sotiropoulos, political science professor at the University of Athens.

A win for the "yes" campaign could cast Tsipras' public mandate in doubt and force him to broaden his coalition government, political analyst George Sefertzis said. The new government would have Tsipras' radical-left Syriza party at its core, but the Cabinet's composition could change to include "respected personalities who can be recruited to fill that role."

The Syriza party emerged from the political fringes in January as Greek voters sought an alternative to what they saw as a bankrupt political establishment they blame for opening the door to half a decade of punishing salary and pension rollbacks, steep job cuts and hefty taxes.

Just a few years ago, the country's two main political forces, the rightist New Democracy and the socialist PASOK parties, commanded some 80 percent of the vote between them. Now, their popular support was dwindled.

Tsipras' youth, unorthodox style and pledges to fight for the country's poorest people endeared him to many and convinced some that he could take on the institutional behemoths that decide the economic fate of entire nations.

But months of talks without real results have eroded the Syriza-led government's credibility in the eyes of Europe's power circles.

"This government doesn't trust the institutions of the EU and the IMF, and those institutions trust the Greek government even less," Sotiropoulos said.

Tsipras' campaign appears to rest on whether he can clinch a deal quickly so banks can reopen and get money flowing to businesses again. Tsipras told private TV station Antenna on Thursday that he sees a deal with creditors emerging "within 48 hours" after the referendum.

His finance minister, Varoufakis, told Ireland's RTE radio Friday that should voters reject the earlier proposal, an agreement with creditors "is more or less done" and that European officials had put forward "very decent proposals" last week.

Information for this article was contributed by Jeff Black, Scott Hamilton and Jillian Ward of Bloomberg News; by Griff Witte and Michael Birnbaum of The Washington Post; and by Menelaos Hadjicostis, Nebi Qena, Iuliia Subbotovskaia and Eftehia Katsareas of The Associated Press.

A Section on 07/05/2015

Upcoming Events