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Tuesday, June 30, 2015, Ashar 16, 1422 BS, Ramadan 12, 1436 Hijr


Greece sets sail for choppy, uncharted waters
Published : Tuesday, 30 June, 2015,  Time : 12:00 AM,  View Count : 18
By snubbing a bailout deal and slapping capital controls on its banks Greece has set a course into choppy, uncharted waters that could lead to fresh economic upheaval and a euro exit.
After five months of torturous negotiations and just days away from a default, Greece's radical leftist Prime Minister Alexis Tsipras threw the political equivalent of a curve ball by calling a referendum on the bailout proposals for next Sunday.
The vote will likely be decisive in whether Greece stays in the euro or crashes out.
It may be a truism that a week is an eternity in politics, and this one may well seem like it to Greece.
The capital controls and temporary closure of banks will likely bring business screeching to a halt as companies cannot freely access their accounts and stop accepting bank and credit cards for payment.
On Tuesday, Greece will likely default on a 1.5-billion-euro ($1.7-billion) euro payment due to the IMF. On the same day, the international bailout plan on which Greeks will vote on Sunday will formally expire.
Neither the capital controls, which Cyprus used in 2013 when it was bailed out, nor a default are in themselves an automatic trigger for a Greece exit from the eurozone, a so-called Grexit.
"But it would put Greece on the slippery slope towards Grexit," said Berenberg Bank economist Holger Schmieding.
Steps towards that would be issuing IOUs to pay state workers and bringing back the drachma, although these could exist alongside the euro for a while.
But that is not likely to happen in the week before the referendum.
The ECB, while not giving Greek banks extra cash on Sunday, did not cut off the financial lifeline that has kept them, and by extension the Greek government, afloat for the past five months.
The fact that the bailout plan the Greeks are voting for has become void may not be an insurmountable problem as the EU will be keen on keeping Greece in the euro.
However Tsipras said Sunday he had demanded again an extension to the bailout, meaning a deal could be cut in the coming days.
But for Greece to stay in the euro Greeks will need to vote in the referendum to approve the bailout conditions, which include further pension and wage cuts and tax hikes in return for the five-month, 12-billion-euro extension of the rescue package.
It was the five years of austerity-induced recession that wiped off a fifth of Greece's economic output and in turn propelled the radical left Syriza to power in January.
Tsipras has made clear he will be campaigning for a 'No' vote in the referendum.
A rejection of the EU-IMF bailout conditions would no doubt confirm Greece on its course to an exit from the euro.
"For Greece, Grexit would be the abyss," said Schmieding, as the reintroduction of a weak drachma would lead to a hike in import prices that would hurt the most vulnerable. ?AFP










Editor : Iqbal Sobhan Chowdhury
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