ATHENS—Greeks overwhelmingly voted against their international
creditors' conditions for further bailout aid, in a result that
could deepen the rift between Greece and the rest of Europe and
push the country closer to bankruptcy and an exit from the
euro.
More than 61% of Greeks voted "no" in Sunday's referendum on
austerity measures and other overhauls that European and
International Monetary Fund officials had demanded in recent
talks—an outcome that spurred popular celebrations into the night
across downtown Athens and other Greek cities.
"I trust this man," said Zoe Vergaki, a young musician among
Greek Prime Minister Alexis Tsipras's cheering supporters on the
capital's Syntagma Square. Nearby, some danced to the music of
"Zorba the Greek." "Whatever deal he brings," Ms. Vergaki said of
the leftist premier, "I will support him."
Greeks' resounding rejection of creditors' demands for pension
cuts, value-added tax increases and other austerity measures is
likely to bolster the conviction of the Athens government that it
can now successfully press its creditors for a better bailout deal
that includes fewer painful fiscal measures and more debt
relief.
"I'm fully aware that the mandate that I was given (by voters)
is not for a rupture with Europe, but a mandate boosting our
negotiating strength for reaching a sustainable deal," Mr. Tsipras
said in a televised message late on Sunday.
That may prove a hard sell in Germany and many other creditor
countries, where many policy makers are likely to view the
referendum result as proof that Greece doesn't want to adhere to
the common rules of the eurozone.
The stability of the eurozone could now hinge on whether Greece
and its creditors can find a way out of their dangerous impasse.
Hard-line eurozone policy makers, led by German Finance Minister
Wolfgang Schä uble, believe that expelling Greece for its
recalcitrance would strengthen the eurozone and put pressure on
other economically underperforming countries—including Italy and
France—to reform, officials in Berlin say.
Other German officials say that Chancellor Angela Merkel worries
that the precedent of a Greek euro exit could make the currency
union chronically brittle, inviting speculation against other euro
members in future financial crises. Ms. Merkel has long been
Europe's most powerful advocate of keeping Greece in the eurozone.
But her stance has shifted closer to Mr. Schä uble's in recent
weeks, however, as Mr. Tsipras's confrontational tactics have
aroused the ire of German voters and lawmakers.
Sunday's collision between the expression of the popular will in
a small European country and the economic-policy consensus of
Europe's political establishment could make the eurozone debt
crisis even more intractable.
Willingness to make politically difficult compromises is
dwindling in both Greece and among its creditors. Avoiding a
financial and economic meltdown in Greece would likely require a
level of flexibility that none of the important actors in the
latest Greek drama have shown over the past year.
Mr. Tsipras is expected to seek a new bailout program from
Europe and has promised Greeks that he can reach a deal in as
little as 48 hours after the referendum. That is highly improbable,
European officials say. Indeed, the challenge for Mr. Tsipras will
be to reach a deal at all, these people say.
Creditors have warned that any further bailout aid will come
with even more strings attached—the opposite of Mr. Tsipras's
promises to Greeks.
Greece's economy, already back in recession this year after a
brief recovery in 2014 fizzled out, is now suffering a fresh
blow—thanks to capital controls and closed banks. Financial
paralysis could worsen in the week ahead as cash in the banking
system runs short.
A weaker-than-expected economic outlook would entail even more
budget measures to achieve the fiscal surpluses before interest
that creditors are insisting on.
Any bailout deal would also require the IMF and eurozone
governments, led by Germany, to overcome their dispute over
Greece's debt. The IMF insists that "comprehensive" debt
restructuring is now needed to make Greece solvent. European
governments have refused so far to discuss any debt relief for
Athens that would impose overt losses on their own taxpayers.
Mr. Tsipras's greatest problem in striking a deal may well be
that other European leaders don't trust him to implement the tough
economic policies they want—even if he were to sign up to them in
principle.
Goodwill toward Mr. Tsipras and his ruling left-wing Syriza
party was already in short supply in most European capitals. But
Mr. Tsipras's decision to call a referendum just over a week ago,
as Greece's European bailout program was about to expire, and to
campaign against creditors' economic demands caused fury around
eurozone capitals, including inside the German chancellery,
European officials say.
Eurozone leaders are now expected to meet on Tuesday evening in
Brussels to discuss the aftermath of Greece's referendum.
Time to repair relations and strike a deal is short. Greece must
repay a €3.5 billion bond held by the European Central Bank on July
20, and another large ECB-held bond that falls due Aug. 20. Without
a bailout deal, Athens faces default on those bonds.
A Greek default would put heavy pressure on the ECB to reject
Greek government-backed debt as collateral for liquidity for Greek
lenders—a move that would likely cause the country's banks to
collapse.
A failure of the Greek banking system has long been viewed by
economists as the most likely trigger for Greek exit from the euro.
If unable to raise fresh money in euros to save its banking system,
Greece would likely be forced to print its own national
currency.
The situation could come to a head well before Greece's ECB
bonds are due. Louka Katseli, chairwoman of Greece's largest bank,
told reporters on Friday that Greek banks had enough cash to
continue doling out money to depositors through Monday. By Tuesday,
they may not have any left.
Mr. Tsipras is now likely to look to Chancellor Merkel to offer
him a bailout that involves less austerity and more debt relief—as
he has done for months.
But Ms. Merkel last week emphasized the principle she has
insisted upon ever since the Greek crisis began in late 2009:
Germany is prepared to finance other euro nations only in return
for far-reaching economic overhauls, including as much austerity as
is needed to close budget deficits.
Breaking that rule would do more damage to the eurozone than
letting a country that rejects the rules go, Ms. Merkel told
Germany's parliament last week.
Mounting anger among German voters, media and lawmakers against
Greece's Syriza-led government also limits Ms. Merkel's scope for
offering Mr. Tsipras more-generous bailout terms. German public and
elite opinion is strongly opposed to forgiving any of the country's
loans to Athens.
The tensions among Athens, Berlin and the IMF that have made an
agreement elusive all year haven't been reduced by Sunday's
referendum.
If anything, the emphatic proof of Greek popular support for Mr.
Tsipras's hard line against creditors could make him even less
willing to bend, and the dispute more intractable.
How the ECB reacts to a potential Greek bond default on July 20
depends on the political context, European officials say. If there
is progress toward a financing agreement between Athens and other
eurozone governments, then the ECB is more likely to use all
available flexibility in its rule book to continue supporting
Greece's banks.
But a continued standoff between Mr. Tsipras and his European
peers would make it difficult for ECB President Mario Draghi to
justify further liquidity support for Greek banks to his
increasingly impatient governing council, ECB officials say.
Mr. Draghi is reluctant to be seen as the person to push Greece
out of the euro, say people familiar with his thinking. Instead, he
is likely to pass responsibility for any such decision to eurozone
governments by requesting that they guarantee Greek liabilities. If
such a guarantee isn't forthcoming, the ECB could argue that
European leaders have taken a political decision to cut Greece
loose, these people say.
Viktoria Dendrinou and Marcus Walker contributed to this
article.
Write to Nektaria Stamouli at nektaria.stamouli@wsj.com and
Stelios Bouras at stelios.bouras@wsj.com
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