The eurozone’s three biggest countries have raised the stakes in next Sunday’s Greek referendum with an orchestrated warning to voters that a “No” vote would mean exit from the single currency and the return of the drachma.
As the Greek economy suffered on its first day of stringent capital controls, politicians from Germany, France and Italy joined the European commission in insisting that the poll was not about whether Athens could secure more favourable bail out terms but was about continued euro membership.
The stark assessment was shared by George Osborne, who told MPs that the UK economy would be affected by the chaos that would result from Greece leaving the euro zone.
The chancellor’s comments came as ratings agency Standard & Poor’s issued a grim analysis of the repercussions that could follow an euro exit, the chances of which it has raised from 33% to 50%. S&P said there could be “a serious foreign currency shortage for the private and public sectors, potentially leading to the rationing of key imports such as fuel.”
S&P added that without continuing European Central Bank support for Greece’s banks the country’s “payment system would shut down and its banks would not be able to operate”.
Eurozone leaders sought to exploit pictures of cash point queues and empty Athens restaurants to stress what was at stake if Greeks supported the decision of their prime minister to reject the fresh austerity measures being demanded by the country’s creditors for continued financial support.
At the end of a day that saw sharp falls in share prices around the globe, Alexis Tsipras, the Greek prime minister, was expected to use a TV address on Monday night to ask a public still stunned by the imposition of a €60 daily limit on bank withdrawals to back his resistance to a new round of tough tax increases and spending cuts demanded by the troika of the commission, the European Central Bank and the International Monetary Fund.
With polls showing Greeks in favour of remaining inside the eurozone, the Greek government made no mention of exit from the single currency in the wording of Sunday’s referendum. This will ask Greece whether they support the “plan of agreement” drawn up by the troika and will put the “No” option Tsipras wants at the top of the ballot paper.
The publication of the wording coincided with Greece admitting that it would not meet the Tuesday deadline for making a €1.6bn (£1.1bn) payment to the IMF in Washington and new evidence of the parlous state of Greek banks following the referendum announcement. It emerged that the Bank of Greece asked in vain for the ECB to increase its emergency funding by €6bn in order to cover panic withdrawals.
Sigmar Gabriel, Germany’s vice-chancellor, voiced concerns that a so-called Grexit could start to unravel six decades of closer integration. He said the crisis was the most serious faced by Europe since the signing of the Treaty of Rome in 1957. He added that if the Greeks voted “no” on Sunday they were voting “against remaining in the euro”.
He was supported by French president Francois Hollande, who came under strong pressure from Barack Obama to find a solution to the deepening crisis before it caused more damage to a still-fragile global economy. Hollande said: “It’s the Greek people’s right to say what they want their future to be”, adding: “It’s about whether the Greeks want to stay in the eurozone or take the risk of leaving.”
Jeroen Dijsselbloem, the chairman of the Eurogroup of finance ministers from the 19 nations using the single currency said the door was still open for negotiations to resume despite time running out before Sunday’s referendum.
But the hardening stance among Greece’s partners was evident from a tweet by Matteo Renzi, Italy’s prime minister and hitherto seen as one of the European leaders closest to Tsipras. The referendum, Renzi said, was not a question of the Commission versus Tsipras but of “the euro versus the drachma. This is the choice”.
Jean-Claude Juncker, the commission president, said: “It’s the moment of truth ... I’d like to ask the Greek people to vote yes ... No would mean that Greece is saying no to Europe.” In a sign of how relations have been soured by last week’s rejection of what was seen by Tsipras as a take-it-or-leave-it final offer, Juncker accused the Greek prime minister of telling lies about the proposals and said they did not include plans to cut pensions. A government spokesman in Athens accused Juncker of telling a “preposterous lie”.
Greece’s stock market was closed but a share price fall that began in Asia spread to Europe and later the US. London’s FTSE 100 lost almost 2% of its value, with drops of 3.5% in Frankfurt and 3.7% in Paris. New York’s Dow Jones Industrial Average slid by just over 1% in morning trading. On global markets, the interest rate on Greek 10-year bonds rose by four percentage points to 15% - a sign that financial markets fear the country’s days in the euro are numbered. Around 850 Greek banks could open for business on Thursday in order to pay pensions, the government said.
Osborne said British holiday makers travelling to Greece should carry enough cash for the whole trip and to cover emergencies. Following a contingency meeting with David Cameron and the governor of the Bank of England, Mark Carney, the chancellor said he was “hoping for the best but preparing for the worst.”
The chancellor said British taxpayers could be liable for hundreds of millions of pounds if Greece falls out of the eurozone and relies on an emergency loan scheme supported by the EU’s budget which is funded by all 28 member states, George Osborne has confirmed.
In a statement on the Greek crisis, the chancellor said that an early decision by the coalition government was to exempt the UK from eurozone bailouts, dramatically reducing the “direct exposure” of the UK.
But Osborne added: “Of course we are part of the financial system of Europe and we will be affected if there is a Greek exit.”
The chancellor’s remarks referred to the EU’s balance of payments support system which is open to non-eurozone members of the EU. The scheme has been used in recent years to release billions of euros to Romania, Hungary and Latvia when they were hit by the global financial crash.
If Greek falls out of the euro it is expected that the IMF would become its main lender of emergency. Under the arrangements for Hungarian and Romanian, the EU balance of payments scheme provided around 40% of their loans.
This article was written by Larry Elliott, Graeme Wearden and Nicholas Watt, for theguardian.com on Monday 29th June 2015 20.02 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010