European markets tumbled Monday as concern rose that Greece’s national bankruptcy was imminent following a chaotic weekend of political brinkmanship that set the country on course for leaving the European common currency as early as this week.
Stock markets in Germany, France, Britain and in smaller countries slid across Europe by up to 4 percent as the Greek state shifted into emergency mode, closing the stock market in Athens and the nation’s banks for six business days.
The benchmark German DAX Index was down 2.9 percent, or 329.23 points, at 11,163.20 in Frankfurt trading at 4:52 p.m CET. The price of safe-haven investments such as gold and German government bonds surged as investors sought refuge from the stock market volatility.
Four years of negotiation between Greece and its international lenders appeared to finally break down after the failure of talks over the weekend and the snap decision by the Greek prime minister, Alexis Tsipras, to hold a national referendum on the lenders’ latest offer on Sunday.
Mr. Tsipras took the unusual step after the country’s lenders rejected a request to extend Greece’s bailout package by another month. The European Central Bank, one of the lenders, raised the stakes Sunday by saying that it would effectively no longer infuse the country’s banking system with emergency overnight cash, which prompted Mr. Tsipras to shut the banking system, only hours after promising Greeks he would keep it open.
“A Grexit,” said an experienced euro-zone official, “has never been closer.”
The mood in Athens appeared to still be eerily calm as Greeks lined up on Saturday and Sunday to withdraw cash from bank machines in preparation for a week when the country’s banking system, and much of its economy, is expected to shut down or move into subsistence mode.
Political recrimination dominated the Greek and European airwaves over the weekend as elected officials sought to lay blame for the breakdown in talks with their opponents.
The lender trio of International Monetary Fund, European Commission and European Central Bank was angered by the Greek government’s decision, made without consulting them, to call a national plebiscite on their latest offer next weekend.
In a televised speech to Greeks on Sunday, Mr. Tsipras blamed European lenders for their alleged intransigence and urged fellow Greeks to reject the lenders’ offer at the referendum on the weekend. Polls however showed that only a minority of Greeks were willing to follow Mr. Tsipras’ advice.
With negotiations and the Greek economy at a standstill, and Greek consumers increasingly rattled by a lack of access to cash and no visible prospects for a political solution, the four-year attempt to keep Greece in the euro zone appeared to have failed, with both sides unwilling to compromise.
A watershed event could come tomorrow, when Greece is required to pay €1.6 billion, or $1.8 billion, to the International Monetary Fund, its latest repayment to a trio of lenders that also includes the European Central Bank and euro-zone members.
Should Greece fail to make that payment, the country could slip into technical default, accelerating its exit from the euro zone and taking the economy into uncharted fiscal waters. The country may have to rapidly introduce a new currency and retool for the new realities of its life outside the euro zone. (For a review of the pessimistic scenario, click here)
But even as pessimism grew, some were still holding out hope for a last-minute compromise. Although no further talks had been scheduled as of Monday morning between Greece and its lenders, the German chancellor, Angela Merkel, was expected to address the situation later today. (For a review of the positive scenario, click here)
Ms. Merkel, whose country has led the hard-line bargaining position with Greece, could offer an olive branch that gives Greece and its political leaders one last chance to avert what may become an economic disaster for Greece and its 11 million citizens.
Ms. Merkel’s flexibility is limited, however, as most polls show that Germans oppose making further economic concessions to Greece, which has accepted billions in financial aid from lenders, including Germany, but has largely failed to deliver on many of its promised government and economic reforms.
Some observers were even pointing to Sunday’s scheduled nationwide referendum, noting that Greek voters, most of whom prefer to keep the euro, may defy their own political leaders and accept the lenders’ offer. Such a rebuff from Greek voters could lead to a shakeup in government or in some of its top officeholders, perhaps creating space for a last-minute compromise.
Others think that Mr. Tsipras, whose left-wing Syriza party was elected in January on a promise to end the country’s grinding austerity, may be intentionally throwing the situation to voters to prepare for a climb-down and eventual accession to lender demands, saying the people had spoken for him.
But as jittery markets assessed the odds of a so-called Grexit from the euro zone, a Greek national bankruptcy seemed on Monday all but inevitable after the events of the weekend.
Europe, meanwhile, appeared to be devoting its energy to containing the risk of contagion for the euro in the event of a Greek exit from the common currency.
From ECB President Mario Draghi to German Finance Minister Wolfgang Schäuble to European Commission President Jean-Claude Juncker – all affirmed that Europe is prepared for a Greek exit.
Their statements over the weekend, delivered separately, sounded like an invocation.
It may just be the new mantra for the old continent.
“A national bankruptcy can hardly be avoided now,” said one euro zone official, who said he was determined to save the euro.
But there is also a palpable sense in Europe that Athens’ tenure in the euro zone is drawing near.
The G7 group of the world’s major industrialized nations held a telephone conference to discuss the situation on Sunday.