Tuesday 25 October 2016

Greece is the word as crisis threatens to trigger financial rout

Patrick Edwards

Published 29/06/2015 | 02:30

An anti-austerity protester burns a euro note during a demonstration outside the European Union offices in Athens
An anti-austerity protester burns a euro note during a demonstration outside the European Union offices in Athens

There is only really one show in town this week; Greece.

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Following yesterday's decision by the European Central Bank to freeze funding, the Greek crisis will dominate trading this week.

Asian markets began to deliver their verdict on the weekend's events overnight and it is conceivable that some sort of panic could spread today.

News that Greek banks and the Athens stock exchange will not open today stunned investors. Governments around Europe are now locked in talks to devise strategies to quarantine Greece from the rest of the currency bloc, while also keeping it from spinning out of the euro's orbit.

German Chancellor Angela Merkel has invited leaders of all the major German parties to a meeting in Berlin today to discuss the crisis.

With the current bailout expiring tomorrow and a $1.7bn payment due to the International Monetary Fund on the same day, Greece will be left with no backstop.

Amid the drama in Greece, where a clear majority of people want to remain inside the euro, the next few days until Sunday's referendum present a major challenge to the integrity of the 16-year-old euro zone currency bloc.

Still, a deal may yet be possible.

European Council President Donald Tusk said yesterday he was in contact with all the governments of the euro zone to ensure Greece remained in the single currency.

Several officials added there was still time to return to the negotiating table.

"To those who wonder what's next, 1. Greece should stay in euro; 2. The door is still open for negotiations on latest EU Commission proposals," EU Economics Commissioner Pierre Moscovici said.

French Prime Minister Manuel Valls yesterday urged the Greeks to continue talks.

"I cannot resign myself to Greece leaving the euro zone ... We must find a solution," he told 'Le Monde'.

International Monetary Fund boss Christine Lagarde said that if Sunday's referendum produced "a resounding yes" to remain in the euro and fix the economy then creditors would be willing to make an effort.

Pretty much everything is hazy at this stage but it is clear that any collapse of the banking sector over the week could force Greece will have to introduce a parallel currency in the form of some debt instrument like IOUs to cover the government's domestic obligations.

This parallel currency to the euro could become the new Greek currency.

It is unclear how long Greece could or would be willing to have two currencies, one of which - the IOUs - would very quickly undergo a major devaluation.

The Greeks look likely to vote next weekend amid cash shortages, capital controls and social unrest. The Greek government has steered public opinion towards voting "no" to the creditors' demands, which would effectively be a vote on leaving the euro.

If Greece votes in the referendum to agree to the creditors' conditions for further financial help, the government would have to ask for and negotiate a third bailout programme with international lenders.

Such negotiations would probably take many weeks or even months because they would be even more difficult than those that broke down this weekend, officials said.

(News agencies)

Irish Independent

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