Greece is celebrating this evening after the nation overwhelmingly voted “No” — or “OXI” — in the country’s bailout referendum. The nation has rejected its European creditors’ demands and now it doesn’t have enough money to pay back its debts.
My colleague Mike Bird reported live from Athens that the win for No was dramatic — over 60% of the country backed the government’s proposal to reject the agreement negotiated with the country’s European creditors — and t
housands of people streamed into Syntagma Square, the centre of Greek political life, to celebrate the enormous rejection of the country’s bailout deal.
However, Greeks may find themselves a little bit more upset tomorrow when it’s likely that Greece will keep its banks close and cut the cash withdrawal limit, according to IHS Global Insight’s senior economist Diego Iscaro.
“All eyes will now be on the European Central Bank tomorrow. We expect the central bank to continue providing liquidity to Greece’s financial sector, although the small chance of the ECB increasing the cap on the emergency liquidity assistance this week has disappeared with the referendum result,” said Iscaro in a note this evening.
“This significantly raises the probability of banks running out of cash over the coming days. We estimate it is very likely banks will not reopen on 7 July as currently expected. Moreover, the limit on bank withdrawals, currently at €60, may also need to be reduced.”
One week ago Greece’s government shockingly announced the bailout referendum for Sunday July 5, and subsequently announced that the banks would remain shut until after voting and restrict cash machine withdrawals to prevent the nation draining the banks dry.
It has led to crazy long queues, pensioners crying on the streets, and panic that people will lose their life savings because of the likelihood that Greece will exit the euro and turn to its old currency the drachma.
On July 3, the head of the Greek Banks Union admitted that Greece’s ATMs will run dry by Monday unless Europe steps in and loans it more cash. The day before, my colleague Myles Udland reported that the banks were down to their last €500 million (£355.6 million, $US555 million).
From the sounds of it from IHS Global Insight’s Iscaro, it could take a while for Greece’s government to turn the taps back on at the Greek ATMs and open doors at the banks, as it starts negotiations effectively from scratch as of Monday July 6.
“Negotiations will resume over the coming days but the probability of a deal is distant. (Prime Minister Alexis) Tsipras’ argument is that he can now go back to the lenders in a stronger position,” said Iscaro. “However, we believe it is unlikely the creditors’ proposals will be significantly relaxed as a result of the “no” vote. It will now be impossible for the SYRIZA-led government to accept the deal currently on the table, which means that the risk of a total collapse in the negotiations has increased significantly.
“In our view, the only hope of a deal may rest on the IMF convincing Eurozone governments to include a clause promising debt relief in the future, conditional to Greece meeting certain targets. This will be extremely difficult but lenders may come to the conclusion that it is the only way to avoid Greece leaving the eurozone.”