ECONOMY

Varoufakis to be quizzed as Greek lawmakers debate referendum

Greek Finance Minister Yanis Varoufakis faces questions from his euro-area counterparts after the decision to call a referendum on the terms of Greece’s bailout upended work to resolve a standoff over aid.

Finance chiefs from the 19 nations that use the euro are preparing to meet in Brussels Saturday, hours after Prime Minister Alexis Tsipras called a July 5 ballot on whether Greece should accept the demands of the country’s creditors.

Ministers who had thought the fifth so-called Eurogroup meeting in little more than a week would hammer out the final pieces of a deal to unlock aid must now take stock of one of the most dramatic moves yet in a debt crisis that began more than five years ago.

“We will go into today’s Eurogroup meeting with a very long list of questions for Yanis Varoufakis — and we need clear answers from him,” Maltese Finance Minster Edward Scicluna said in an interview. “Is there going to be an agreed package today which then is put for the people to decide on?”

The talks will focus on questions of the creditors’ bailout offer, whether to extend the bailout and contingency plans in the event of a breakdown, a euro-area official said. The meeting is predicted to be a long one, the official said.

Greek debate

The outcome will help determine a series of events over the coming hours before markets — and Greek banks — open on Monday morning. With evidence that some ATMs in suburbs of Athens had run out of cash Saturday, Greek lawmakers began to debate the government’s referendum plan, including the proposed question to be put to the people.

The turn of events was sparked after midnight in Athens, when Tsipras returned from weeklong negotiations in Brussels and announced the referendum. In a nationally televised address, he excoriated a take-it-or-leave it offer as a violation of European Union rules and “common decency.”

The snap plebiscite was announced five months after Tsipras was swept into office on a wave of discontent about budget cuts that deepened a six-year recession. Some members of his Syriza party advocate defaulting rather than backing down from their anti-austerity policies and Greek ministers, including the defense chief, urged the country of 11 million people to vote “no.”

Greece ‘ultimatum’

“Our partners unfortunately resorted to a proposal- ultimatum to the Greek people,” Tsipras said. “I call on the Greek people to rule on the blackmailing ultimatum asking us to accept a strict and humiliating austerity without end and without prospect.”

Greek markets have gyrated with each new twist. The Athens Stock Exchange Index rose 16 percent last week, and fell 11 percent the week before that. What’s more, Greek companies, which make up less than 0.1 percent of the broader Stoxx Europe 600 Index, has been dictating European stock moves in recent weeks.

The 30-day correlation between the Euro Stoxx 50 and the ASE has reached 0.7 from almost 0 in April. A correlation of 1 means both gauges move in lockstep.

Tsipras has refused to bend to the creditors’ terms accusing them of prolonging a punishing austerity. While his brinkmanship has taken his country to the edge of capital controls and a potential exit from the euro, the vote also has the potential to settle once and for all the question of whether voters want to stay in the currency area.

Referendums are rare in Greece. In 1974, as the country was emerging from a military dictatorship, Greeks voted against a monarchy and became a republic.

Grexit vote?

A “no” vote could ultimately draw the curtain on Greece’s membership of the euro. Faced by a rejection of its demands and those of other creditors, the European Central Bank could feel obliged to cut off the emergency funds that the country’s banks rely on for survival. On the other hand, a ‘yes’ vote would spell defeat for Tsipras and may force him into early elections.

“It looks as if we will have capital controls as of Monday,” Guntram Wolff, director of the Brussels-based Bruegel group, said in an e-mail. “The ECB will unlikely continue to provide ELA and capital controls therefore become imperative.”

[Bloomberg]