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Greeks Vote “No.” Could be Out of the European Union

Greeks Vote “No.” Could be Out of the European Union

Yesterday, the citizens of Greece voted to reject the latest bailout package being offered by European leaders, sending the debt-strapped country back to the negotiating table with its creditors and leaving its future inclusion in the eurozone uncertain.  About 6.2 Greek citizens turned out to vote on the referendum, with just over 61% percent of  casting a vote for “no.”  As a result, the debt-strapped country’s economic future is clouded in uncertainty.

The referendum vote came less than a week after Greece missed a $1.7 billion loan payment to the International Monetary Fund (IMF) and failed to accept a new agreement that called for further austerity measures and tax increases.

Greece Prime Minister Alexis Tsipras urged people to reject the deal last week, though he also sent a conciliatory letter to the heads of the IMF, the European Commission and the European Central Bank (ECB) saying the country would largely agree to the proposed terms. After the vote, he addressed the nation on television, saying he would continue to negotiate with the IMF and the European Commission. The “no” voters are hoping for better term than what was currently on the table although it remains to be seen what if any leverage the country has left.

Many observers interpret the “no” vote as an indication that Greece will eventually exit Europe’s single-currency system. European Parliament President Martin Schulz urged Greek voters to accept the terms of the debt deal that the European Union has put forward. In a statement, Schulz said yesterday’s vote “is a fundamental vote on whether to stay in the eurozone or not.”

The EU has been providing financial assistance to Greece since 2010 in an effort to stabilize the country’s deteriorating fiscal situation. But the dynamics between Greece and its creditors have been changed in the past year. Earlier this year, Greece’s parliamentary elections produced a political coalition diametrically opposed to further austerity measures.  Meanwhile, the composition of Greece’s creditors substantially changed over the past year, largely shifting from the private to public sector.

Greek banks are already operating under strict capital controls after the ECB froze its emergency liquidity provisions at $99 million. Because of that, Greek banks have been closed since last week, panicking many of the country’s citizens.

The European and domestic stock markets opened sharply lower this morning. If the Greek situation is not resolved quickly, many look for continued market sell-offs.

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