GREECE: Voters Reject Bailout

Via the New York Times:

Greeks delivered a shocking rebuff to Europe’s leaders on Sunday, decisively rejecting a deal offered by the country’s creditors in a historic vote that could redefine Greece’s place in Europe and shake the Continent’s financial stability. As people gathered to celebrate in Syntagma Square in central Athens, the Interior Ministry reported that with more than 90 percent of the vote tallied, 61 percent of the voters had said no to a deal that would have imposed greater austerity measures. The no votes carried virtually every district in the country, handing a sweeping victory to Prime Minister Alexis Tsipras, a leftist who came to power in January vowing to reject new austerity measures, which he called an injustice and economically self-defeating. Last month he walked away from negotiations in frustration at the creditors’ demands, called the referendum and urged Greeks to vote no as a way to give him more bargaining power.

From the BBC:

European Commission President Jean-Claude Juncker said he was consulting the leaders of eurozone member states, and would have a conference call with key EU officials and the ECB on Monday morning. French President Francois Hollande and German Chancellor Angela Merkel are scheduled to meet in Paris on Monday. A summit of eurozone heads of state has been called for Tuesday. The European Commission - one of the "troika" of creditors along with the IMF and the ECB - wanted Athens to raise taxes and slash welfare spending to meet its debt obligations. Greece's Syriza-led government, which was elected in January on an anti-austerity platform, said creditors had presented it with an "ultimatum", using fear to put pressure on Greeks. The Greek government's opponents and some Greek voters had complained that the question in Sunday's referendum was unclear. EU officials said it applied to the terms of an offer that was no longer on the table.

Via Reuters:

Shares fell, the euro stumbled and yields on weaker euro zone economies' bonds rose after Greece overwhelmingly voted against conditions for a rescue package, but there was no rout and contagion was limited. Investors sought low-risk assets including Bunds, but the yield premium of Italian 10-year debt over Germany remained below the eight-month highs it hit a week ago. The euro lost half a percent to $1.1053 and 0.6 percent against the safe-haven Japanese yen. It fell as low as $1.0967 in Asia before rebounding, garnering some support from the resignation of Greece's outspoken finance minister, Yanis Varoufakis. Analysts attributed the relatively muted market reaction to expectations the European Central Bank would act to limit any damage. The ECB's governing council was holding a conference call on Monday to decide how long to keep Greek banks afloat.

Dollar Soars Against Foreign Currency

Via the Los Angeles Times:

Americans have long complained that the dollar doesn't buy much anymore. Suddenly, the dollar's problem may be that it buys too much — a change that has huge implications across the global economy for consumers, businesses, investors and governments. The U.S. currency's value has surged over the last nine months, reaching levels against some world currencies last seen more than a decade ago. In Europe, it now costs just $1.09 to buy one euro, down from $1.37 a year ago and almost $1.50 four years ago. To put it another way, an American tourist strolling the streets of Paris this April can buy 25% more croissants, cafe au laits or mini Eiffel towers than a year ago with the same dollars. The greenback's advance has been even more dramatic against some rivals. With its latest rally, one buck buys 30% more Swedish kronor than a year ago, 40% more Brazilian reais and 61% more Russian rubles. Western Europe gets a lot of the publicity because the euro is the weakest it has been since 2003. But the dollar is up 22% from a year ago in Poland, 20% in Morocco, 14% in Mexico and 12% in South Africa.

The downside, of course, is that US exports are more expensive and the cost of visiting the United States is much more than it was just last year.

Eurozone Unemployment

Source.

Greece May Leave Euro Zone

It appears that Greece may leave the Euro Zone and return to a national currency by June 18th, a move that may spark banking panic in other nations where only the first 100,000 Euros on deposit are insured.

"Preventing bank runs in Italy, Spain and Portugal should be the top priority," said Berenberg Bank economist Holger Schmieding. "Policymakers need to make sure that the potential Greek precedent of a forced conversion of domestic euro deposits into a weak new currency would not spark a run on banks ... elsewhere." The ECB is pressing the euro zone to set up a fund that would prevent this dangerous ripple effect, a message reinforced by ECB policymaker Joerg Asmussen last week. "The recapitalization of a troubled bank by its government may lead to a deterioration of the government's fiscal position," Asmussen said. "The deteriorating fiscal position in turn further weakens banks' balance sheets, through their holdings of sovereign bonds.

Turn In Your Francs

The ten-year window to exchange Francs for Euros ends today.

UK To EU: Good Luck With Euro Mess

British Prime Minister David Cameron has refused to sign on to the just-struck pact to save the Euro. All 17 nations that use the Euro have signed on.

Cameron said Britain refused to sacrifice sovereignty to save the euro, remaining outside an agreement by European nations to tighten budget rules. Cameron broke ranks with French President Nicolas Sarkozy and German Chancellor Angela Merkel after he failed to secure safeguards that would have stopped European Union plans to police financial services in London, Europe's trading hub.

In a clash that may reshape Europe's balance of power, the euro users opted to enshrine closer fiscal union in a new treaty that leaves out the U.K. instead of amending EU treaties that date back to the 1950s. Nine non-euro members -- Denmark, Poland, Bulgaria, Hungary, Sweden, the Czech Republic, Latvia, Lithuania and Romania -- indicated they may follow suit after consulting with their national parliaments.

Twitter commentary on the issue ranges from "Well done, Cameron. You got your balls back!" to "Cameron protects City of London banking cronies! Again!" The New York Times calls the treaty a "significant defeat for Cameron."

Mr. Sarkozy said that “David Cameron requested something we all considered unacceptable, a protocol in the treaty allowing the U.K. to be exempted for a certain number of financial regulations.” Mr. Cameron said, “What was on offer wasn’t in British interests, so I didn’t agree to it.” He conceded that there were risks with others going ahead to form a separate treaty, but added, “We will insist that the E.U. institutions, the court and the Commission work for all 27 nations of the E.U.”

British Government Warns Ex-Pats Of Potential Riots Over Euro Collapse

The British government has advised its embassies across Europe that they are to write up emergency plans to assist ex-pats in the event of rioting over the collapse of the Euro.

Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis. The Treasury confirmed earlier this month that contingency planning for a collapse is now under way. A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time. “It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph. Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest.

The treaties that set up the Euro Zone provide no mechanism for member nations to leave the group, setting the stage for widespread chaos.

Anti-Gay Italian Prime Minister To Resign

Italian Premier Silvio Berlusconi has promised to resign in the wake of his nation's growing financial crisis. We last heard from Berlusconi here on JMG when he dismissed his patronage of an underage prostitute by saying, "At least I'm not a homo."

Berlusconi said today that he favored early elections and that Angelino Alfano, head of his People of Liberty party, might be the candidate. Berlusconi last night said he’d step down as soon as parliament passed cost-cutting steps pledged to European Union allies in a bid to convince investors Italy can curb record borrowing costs. Parliament is due to vote on the measures in the coming weeks. Italian stocks and bonds fell today on concern that a change in leadership won’t be enough to contain the turmoil in a nation with the euro-region’s second-biggest debt. European officials’ inability to tackle the sovereign crisis led to a surge in Italian bond yields in recent weeks that further frayed Berlusconi’s fractious coalition as top ministers bickered over how to protect the country from the contagion.

Among those thought to be contenders to replace Berlusconi is openly gay state governor Nichi Vendola.

As for the center-left forces, the prospect of a coalition between the Democratic Party and the post-communist party led by Nichi Vendola (now the president, remarkably, of the conservative southern Italian region of Apulia) is growing. The former magistrate Antonio Di Pietro, whose crusading investigations of political corruption overthrew Italy’s party system in the early 1990’s, is bound to join them. Current public-opinion polls indicate that this alliance will win a majority. But political and financial analysts consider such a coalition to be excessively leftist. How would such a government cope with the European Central Bank’s demand for fiscal austerity as the condition sine qua non for the ECB’s purchases of Italian bonds?

RELATED: For more about Nichi Vendola, see my post from January.

Major Austerity Measures For France

Greek Referendum Dominates G20

It's a snowballing mess.

Markets Tumble Over Greek Crisis

Greece Near Bankruptcy

Greece is perilously close to defaulting on its debts, putting the solvency of the euro at risk as well.

If no buyers can be found for its securities, Greece will have no choice but to declare insolvency -- just as Mexico, Ecuador, Russia and Argentina have done in past decades. This puts Brussels in a predicament. European Union rules preclude the 27-member bloc from lending money to member states to plug holes in their budgets or bridge deficits. And even if there were a way to circumvent this prohibition, the consequences could be disastrous. The lack of concern over budget discipline in countries like Spain, Italy and Ireland would spread like wildfire across the entire continent. The message would be clear: Why save, if others will eventually foot the bill? On the other hand, if Brussels left the Greeks to their own devices, the consequences would also be dire. Confidence in the euro would be shattered, and the union would face a crucial test. What good is a common currency, many would ask, if some of the member states pay their debts while others do not?