Germany, France demand 'serious' proposals from Greece after 'No' vote

Germany and France on Monday (Jul 6) called on Greece to make detailed proposals to revive bailout talks, a day after Greek voters defiantly rejected creditors' demands for further austerity, plunging Europe into crisis.

With Greece's economy gasping for air, the authorities extended an eight-day bank closure amid fears cash machines in the country were running dry.

The European Central Bank, which has been keeping Greek lenders afloat, meanwhile announced it would maintain its liquidity lifeline to Greek banks, but made it harder for them to access the funds by tightening collateral terms.

"The door is open to discussions," said French President Francois Hollande after crisis talks in Paris with German Chancellor Angela Merkel. "It is now up to the government of Alexis Tsipras to make serious, credible proposals so that this willingness to stay in the eurozone can translate into a lasting programme."

Premier Tsipras is to unveil his government's proposals on Tuesday at a hastily-arranged emergency summit of the 19 eurozone countries in Brussels.

Merkel, speaking alongside Hollande, said the conditions for a new Greek rescue package "have not yet been met." "And that is why we are now waiting for very precise proposals from the Greek prime minister, a programme that will allow Greece to return to prosperity," said Merkel, adding that eurozone countries had already shown "a lot of solidarity with Greece".

CASH FEARS

As Athens awoke after a night of celebration after the 'No' camp won a closely-watched referendum on bailout terms, Greece's firebrand finance minister, Yanis Varoufakis, announced he was stepping down to try to ease friction with creditors.

Varoufakis had infuriated European counterparts by lashing demands for economic reform and welfare cuts as "terrorism" and "fiscal waterboarding." He was replaced by Euclid Tsakalotos, a much more discreet junior foreign minister and economist who has been Greece's pointman in the negotiations with creditors.

"We want to continue the discussion ... I believe something can change in Europe," said Tsakalotos, who admitted to having "stage fright" upon assuming the post "not at the easiest moment in Greek history".

The White House urged all parties to seek a compromise that would keep Greece in the euro zone and place its economy "on a path toward debt sustainability but also economic growth."

Positions among Greece's 18 partners in the eurozone vary ahead of Tuesday's summit. Germany, Finland, Slovakia and the Baltic states have taken a notably harder line, whereas France, Italy and Spain have adopted a more conciliatory tone.

Despite its tougher approach on debt relief, Germany said on Monday eurozone leaders should discuss humanitarian aid for a country fatigued by years of belt-tightening and chronic unemployment.

In Sunday's plebiscite, Greek voters voted by 61.31 per cent to 38.69 per cent to reject austerity terms in exchange for releasing more funds under an international bailout package. The result dealt a body blow to the vision of European integration, but elated parties campaigning against austerity and loss of national sovereignty.

Many Athenians awoke on Monday to the grim reality of closed banks and yet more lines at cash machines to make their daily withdrawal limit of €60 (US$67). Fears were growing that the machines could soon run dry despite the government-enforced caps.

"I'm very afraid we will get no cash anymore in the coming days. They really have to fix it, end of this week at the latest, otherwise it (the economy) is collapsing," said pharmacist Lambros Vritios.

In Frankfurt, the ECB said its governing council had decided to keep emergency funding to Greek banks - so-called Emergency Liquidity Assistance (ELA) - at the level set on Jun 26. But it noted that ELA can only be provided against sufficient collateral.

"In this context, the Governing Council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA," the statement said, a move that will make it more difficult to access ELA funds in the future.

Greek banks are to remain closed on Tuesday and Wednesday. Greece last week Greece defaulted on a €1.5-billion (US$1.7-billion) repayment to the International Monetary Fund but IMF chief Christine Lagarde said her organisation was "ready to assist Greece if requested to do so".

Market reactions to the referendum were mostly muted, suggesting limited contagion from a possible "Grexit", or Greece's exit from the eurozone. European figures emphasised that a euro firewall was strong enough to contain jitters from Greece.

"The stability of the euro area is not in question," European Commission vice president Valdis Dombrovskis told a press briefing. "We have everything we need to manage the situation." More than three-quarters of Greeks want to stay in the eurozone, according to surveys.

'BAD BLOOD'

But analysts are now putting the chances of a Grexit at "very high". "Did Tsipras celebrate a Pyrrhic 'No'?" asked Carsten Brzeski, chief economist at ING-DiBa bank. "Lots of bad blood is on the floors. Greek banks are closed and Greece does not have a bailout programme."

Tsipras, 40, insists that instead of Grexit, the creditors will now finally have to talk about restructuring Greece's massive €240 billion (US$267 billion) debt to them.

The last EU-IMF bailout for Greece expired last Tuesday, despite Tsipras's appeals for it to be extended. Greece was officially declared in default on Friday by the European Financial Stability Facility, which holds €144.6 billion (US$160 billion) of Greek loans.