EU scrambles to respond to Greek vote

European leaders are scrambling to respond to the decisive referendum result on Sunday, with hopes that fast-track negotiations might stop the crisis from escalating even further.

The most dramatic sign that a new start was in the wind came yesterday morning with the shock resignation of Greece's combative Finance Minister Yanis Varoufakis, who played a key role in rallying "No" votes for the referendum.

Mr Varoufakis said on his blog that Prime Minister Alexis Tsipras believed his resignation would help smooth the path to a new aid deal.

"I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through (the) referendum," he said.

Mr Varoufakis had few friends left among European Union leaders due to his often aggressive negotiating style and pugnacious comments on social media.

He further infuriated Greece's European partners last week when he accused creditors of using "terrorism" against the Greek people to intimidate them into accepting more austerity.

The "No" vote has created an enormous problem for Europe's leaders, who now face the choice of caving in to the leftist Greek government's demands on further debt relief for the shattered country or dooming it to a quick exit from the euro zone.

German Chancellor Angela Merkel and French President Francois Hollande were set to meet in Paris after press time, in an effort to forge a common Franco-German response, setting the stage for an emergency summit of all 19 euro-zone leaders today.

They will likely encounter a more assertive Greek Prime Minister.

The "No" vote was a major political victory for Mr Tsipras, whose radical-left Syriza party urged Greeks to reject a "humiliating" deal from the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF).

Asian stock markets fell and the euro slid yesterday, as global markets tried to weather the immediate fallout from the Greek referendum.

Banks were due to reopen today after a week-long shutdown, but they could remain closed unless new emergency loans are granted by the ECB.

Cash withdrawals from automated teller machines have been limited to 60 euros (S$90) a day, putting enormous strain on the economy and day-to-day life as food and medicine shortages emerge.

There are fears that the banks could run out of cash within days, potentially forcing the government to issue a parallel currency to pay pensions and wages.

Analysts believe there will be further attempts to negotiate a new deal with the country's creditors.

Jonathan Loynes, chief European economist at Capital Economics, said it will be an enormous challenge for both sides to find a solution before the next deadline of July 20, when Greece is due to make a 3.5-billion-euro bond payment to the ECB. "A default on that payment would surely make it impossible for the central bank to continue to prop up the nation's banks," he said.

"What's more, the true deadline may be significantly closer than that, given the anecdotal evidence that Greek banks have only a few days' worth of cash left."

chiaym@sph.com.sg

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