Grexit Fears Heighten after No Vote

Greeks voted against accepting creditors’ terms for austerity in exchange for an emergency loan to help them avoid defaulting to the IMF and ECB.

The vote was largely expected, but it has still caused turmoil in equity markets in Europe and in the United States, where fears of a Grexit are steering investors to avoid risk. After voting against the creditors’ demands, Greece may find it harder to negotiate with Germany and the EU as a whole, who largely want Greece to accept more austerity in order to pay back loans that were acquired in the 2000s.

Greeks voted against accepting creditors’ terms for austerity in exchange for an emergency loan to help them avoid defaulting to the IMF and ECB.

The vote was largely expected, but it has still caused turmoil in equity markets in Europe and in the United States, where fears of a Grexit are steering investors to avoid risk. After voting against the creditors’ demands, Greece may find it harder to negotiate with Germany and the EU as a whole, who largely want Greece to accept more austerity in order to pay back loans that were acquired in the 2000s.

A total of 61% of Greeks voted against the proposal, according to Prime Minister Alexis Tsipras’s recommendation. Some had expected a “yes” vote to eke by after a week of bank closures and capital controls have made business in Greece even tougher to conduct.

Tsipras nonetheless praised the Greeks for their courage in the vote. “You’ve chosen bravely,” he said in a speech. “This mandate is not the mandate of a rupture with Europe, but a mandate to strengthen our negotiating position to find a workable solution.”

It remains unclear how Greece will proceed without liquidity from the ECB, although some analysts believe that this vote could force the ECB to continue to provide Greece emergency funding anyway, lest it lose credibility as a lender of last resort for the rest of the monetary union.

The Syriza party maintains that the vote will allow it to negotiate a deal with better terms with the European Union, although many analysts disagree. One investment bank has warned investors that a Grexit is now significantly likelier than ever before. The euro has suffered in markets, falling 1% after the vote was announced.

The EU is planning emergency negotiations this week with Greece, with Tsipras meeting European Commission President Jean-Claude Juncker. Juncker will also discuss the situation with ECB leader Mario Draghi to discuss next steps.

Varoufakis Resignation

Some analysts believe Greece may be in a stronger position to negotiate after confirmation of its conviction in refusing austerity. Additionally, Greece may find it easier to negotiate now that its Finance Minister has resigned.

Former Greek Finance Minister Yanis Varoufakis was a particular thorn in the Bundesbank’s side, arguing plainly and aggressively against the demands for austerity on humanitarian and economic grounds. Varoufakis made headlines for alluding to Germany’s debts from World War II, famously forgiven in the 20th century.

Varoufakis’s controversial style earned him a lot of criticism, making him an ideal candidate to resign and allow face-saving on both sides of the debate. On his website, Varoufakis made his resignation known in his characteristically frank style. “Soon after the announcement of the referendum results, I was made aware of a certain preference by some Euro group participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today,” he wrote.

A replacement has not yet been named.