After ‘no’ vote, ECB holds key for Greece

After ‘no’ vote, ECB holds key for Greece

Following Sunday's referendum and a victory for “no” with over 60 percent of the vote, the Greek government is preparing for its next move, examining a reshuffle and a new approach to restart negotiations with creditors. But the European Central Bank, whose governing council is set to meet on Monday, holds the key.

In Berlin, there is a much different atmosphere and for the German government, the course of developments does not hinge on the ECB, but the meeting between German Chancellor Angela Merkel and French President Francois Hollande on Monday. The current mood in Berlin makes a new bailout unlikely, according to sources close to the German government.

Consensus and scenarios

The optimists hope that the eurozone will not pull the plug on Greece immediately. The ECB may choose to retain liquidity as low as possible and the eurozone may restart talks with the government with a view to reaching an interim agreement. But this agreement would be far from the one the Greek government wants. It would be an agreement to give time to the eurozone and Greece to avoid a humanitarian crisis. This is also emerging a the most likely and best-case scenario, according to top eurozone officials.

The worst-case scenario would be a freeze of talks with Greece immediately, the ECB pulling the plug, the complete shutdown of Greek banks and the triggering of a humanitarian crisis.

A moderate scenario would be a new round of discussions that will not result in an agreement.

Key eurozone officials and leaders are discussing their next steps and their stance on Greece. An unofficial Eurogroup on Monday cannot ruled out.

At the same time, political analysts in the eurozone say that Prime Minister Alexis Tsipras and the Greek people have handed the best possible gift to the political forces in the eurozone that would like to see Greece exit the euro and the EU.

As regards the ECB, top eurozone sources estimate that the central bank will support Greek banks with liquidity in order to avoid an immediate collapse of the banking system and allow Greeks to withdraw the minimum possible from  ATMs (the current daily limit is 60 euros). This limit may change in the coming days.

The same sources believe that the ECB will not take any decisions that could lead Greek banks to a sudden death, regardless of the final decision and the outcome of the new round of talks between Greece and the eurozone.

On a political level, top analysts and diplomats believe that the main eurozone players will not allow Tsipras to become either a hero or a winner in negotiations. In this context, they do not share the same optimism with Athens about the outcome of the new round of negotiations.

According to the same sources, one possible scenario is an overhaul of the government or a new coalition with pro-euro parties. Elections also cannot be ruled out.

Banking system

Greek authorities are focusing on Greek banks, which have been closed since Monday. According to sources familiar with the matter, ATMs will have money on Monday but the situation remains uncertain and the key will lies with the ECB. The same sources do not expect Greek lenders to open on Tuesday as the government claimed before the referendum. On the contrary, they say that in the best-case scenario, banks will remain closed for weeks or even months unless Greece achieves an agreement with the creditors.

Opposition parties called on Tsipras to live up to his promise to reach a deal with creditors following a “no” from the Greek people. Finance Minister Yianis Varoufakis denied saying a “no” vote will lead to a deal within 24 hours. He blamed the “toxic” media for misinterpreting his words, insisting he said “a no could bring an agreement in 24 hours.”

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