Markets dip on Greece rejection of bailout terms
Greece’s vote not to accept the bailout terms offered by its international creditors has rattled markets in early trading.
The country saw 61.3 per cent of voters state their objection to the terms of its bailout offered by the European Union, European Central Bank and International Monetary Fund.
In spite of the victory, Yanis Varoufakis, Greece’s minister of finance, has resigned after stating in his blog that after the referendum result he was “made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings”.
Mr Varoufakis added this appeared to be 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,” he said.
Attention will now turn to the meetings which are due to be held this week to try and establish a deal.
And slightly further out, markets will be keen to see if Greece pays €3.5bn it owes to the ECB through a Greek bond the bank owns on July 20.
If the country defaults, it will likely mean the ECB pulling support for Greece’s banks, something commentators predict would be incredibly painful for the banking sector and the wider economy.
Trevor Greetham, head of multi-asset at Royal London, said the referendum was “never going to end uncertainty for markets”.
“This outcome increases the likelihood of prolonged bank closures, civil unrest and euro exit,” he said.
“The euro is likely to sell off further. The European authorities will respond forcefully to limit market contagion if necessary though they may not need to do more than talk as the spillover into other peripheral bond markets has been very limited to date.”
Mr Greetham added the rejection of austerity by Greece casted “serious doubt” on the long-term political viability of the euro area.
“This is a long term story, however,” he said.
“In the shorter term it is hard to see developments in a country making up about 1 per cent of European Union GDP and one tenth of a per cent of its stock market capitalisation having a lasting impact on world markets.
“In fact, with investor sentiment towards the depressed end of the range, Greek stress may be creating a short term buying opportunity for global stocks.
“The fundamentals are positive. Monetary policy globally is still very loose and the drop in energy prices over the last year should underpin a continued expansion in the world economy.”
