Varoufakis Quits as Greece Enters New Showdown With Europe

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Greece Backs Tsipras’s Rejection of Further Austerity

Yanis Varoufakis quit as Greek finance minister, a move intended to help speed talks with creditors after voters rejected further austerity and escalated tension over the country’s place in the euro.

Varoufakis announced the decision in a blog post early Monday, saying there was “a certain preference” among European creditors that he no longer be involved in negotiations. The motorbike-riding economist had sparred openly with counterparts including Wolfgang Schaeuble of Germany.

Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup 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

His abrupt resignation followed victory in Greece’s Sunday referendum with a larger-than-forecast 61 percent of the vote for the “no” campaign he backed along with Prime Minister Alexis Tsipras. With euro-area governments signaling it’s up to Greece to offer proposals, Varoufakis’s absence may help lower the temperature in its efforts to avoid an exit from the euro zone and secure a new bailout from European partners.

“I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum,” said Varoufakis, 54, referring to the body of euro-area finance chiefs that led aid talks. “And I shall wear the creditors’ loathing with pride.”

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The resignation helped mute declines in the euro and European stocks. The euro pared losses after the statement and was down 0.4 percent to $1.1069 at 9:40 a.m. in London. The Stoxx Europe 600 Index fell 1.4 percent to 378.02 points, compared with a drop of as much as 3.2 percent a week ago, when Greece introduced capital controls and closed banks.

Time is running out for Greece to secure a new deal to save its economy from outright collapse. Banks have been closed for a week and may run out of cash within hours unless the European Central Bank extends an emergency lifeline.

Euro-zone leaders are due to meet on Tuesday for an emergency summit on Greece a day after German Chancellor Angela Merkel and French President Francois Hollande hold talks in Paris on a common position. The Frankfurt-based ECB is also due to evaluate its next moves on Monday; Tsipras’s banking decree expires at midnight, and will probably need to be extended without a quick decision from the lender.

Humanitarian Crisis

“Our immediate priority is to restore the Greek banking system,” Tsipras, 40, said in a speech after the referendum result. “I’m confident that the ECB fully realizes the humanitarian side of the crisis in our country.”

https://twitter.com/tsipras_eu/status/617796515071926272https://twitter.com/tsipras_eu/status/617797990015741952

The referendum asked Greeks whether they would accept the terms set by creditors in exchange for financial aid, including curbs on early retirement and sales-tax increases.

PM Alexis Tsipras headed to see the President of Greece after the 'No' vote result became clear
PM Alexis Tsipras headed to see the President of Greece after the 'No' vote result became clear
Photographer: Christopher Furlong

European leaders are showing no immediate willingness to compromise. They firstly want to wait to see what proposals Tsipras will offer to keep Greece in the euro, according to a European government official with knowledge of crisis strategy.

The question remains whether Greece’s creditors will be willing to negotiate with a government that has rejected their conditions for staying in the 19-member currency union, after Portugal and Ireland accepted similar measures and emerged from their own bailout programs. Greece’s departure from the euro is now the most likely scenario, according to predictions from a series of banks including JPMorgan Chase & Co.

Tsipras has “torn down the last bridges across which Europe and Greece could have moved toward a compromise,” German Vice Chancellor Sigmar Gabriel said in an interview with the Tagesspiegel newspaper.

Restoring Dignity

Tsipras and his Coalition of the Radical Left, or Syriza, swept to power in January after campaigning to end crippling budget cuts forced upon the country by creditors and promising to restore “dignity.” Optimism for a deal toward the end of last month was suddenly halted when he called the referendum on June 27, putting an end to talks.

European leaders largely characterized the plebiscite as a vote on membership in the euro itself, although Tsipras insists Greece can stay in regardless.

'No' supporters flooded Syntagma Square in Athens as the result became clear on Sunday night
'No' supporters flooded Syntagma Square in Athens as the result became clear on Sunday night
Photographer: Konstantinos Tsakalidis

The country is buckling under the strain of the capital controls and is at risk of undoing four decades of integration with Europe. The economy has already shrunk about 25 percent over the past six years while the jobless rate is still the highest in the euro region.

“The ‘no’ vote sets the clock ticking on the collapse of Greece’s banking sector,” Nicholas Spiro, the managing director of London advisory firm Spiro Sovereign Strategy, said in e-mailed comments.

With no clear timeline for banks to reopen, companies are concerned about how they’ll pay staff and pension payments are being rationed. Queues at cash machines in central Athens were noticeably longer than over the weekend, as Greeks waited to withdraw the daily maximum of 60 euros each currently permitted by the government.

Nonetheless, the referendum result was a source of joy for many Greeks and Syntagma Square turned into a raucous street party on Sunday as “no” supporters gathered to celebrate. Some danced to music playing from speaker phones, while others took selfies with the crowds in the background.

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