Updated | Greek banks to stay closed till Wednesday

The departure of finance minister Yanis Varoufakis from the Greek Cabinet may have sent a message that Greece is “willing to do its part” in reaching an agreement with its creditors but it will all depend on what Alexis Tsipras’s government will now table on the negotiation table.

Greek banks, which had been due to re-open on Tuesday, will also remain closed until Wednesday. 

German chancellor Angela Merkel held a meeting with French President Francois Hollane to discuss the results of Sunday's Greek referendum, which saw 60% of voters reject bailout reform measueres. After the talks, Hollande and Merkel said that the door remained opene for further negotations, but that crediros require detailed proposals from Greece.

"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," Hollande told a press conference.

Merkel insisted that the last bailout offer was a "generous" one and that the EU can only hold itself together if each country shoulders responsibility for itself. 

"We must respect the vote of the Greek people but we must also respect the other 18 member states," Merkel said. "That's a matter of democracy." 

Eurozone finance ministers will meet on Tuesday, ahead of an emergency summit of EU leaders. Eurogroup President Jeroen Dijsselbloem, who described the referendum result as “very regrettable for the future of Greece”, said the Eurogroup will now wait for the “initiatives” of the Greek authorities.

However, German vice-chancellor Sigmar Gabriel has warned that an unconditional haircut of Greece’s debt would destroy the Eurozone.

"I really hope that the Greek government - if it wants to enter negotiations again - will accept that the other 18 member states of the euro can't just go along with an unconditional haircut,” Gabriel said. "How could we then refuse it to other member states? And what would it mean for the Eurozone if we'd do it? It would blow the Eurozone apart, for sure.”

Malta’s finance minister Edward Scicluna, who in the past expressed his ire at Greece’s “games”, said Varoufakis’s removal improved things “marginally”.

“Varoufakis was, at the end of the day, a minister working for his government. We just hope there are no more tricks and last-minute changes which hindered the trust required in the past negotiations,” Scicluna told MaltaToday.

Varoufakis has now been replaced by Oxford-educated economist and bailout negotiator Euclid Tsakalotos who will be sworn in this evening. Tomorrow he will attend his first as Eurogroup as a finance minister. His first job will be to approve a two-day extension to Greece's capital controls. The €60 daily withdrawal limit remains unchanged.

News of Tsipras seeking to communicate with Russia’s Vladimir Putin has also raised questions over the Greek prime minister’s intentions.

“Nothing in the language or tactics have changed so far. We just hope that tomorrow’s meetings will help clarify things and see what is going to change,” Scicluna added.

Malta’s position vis-à-vis the debt reduction is clear: it will not agree to haircuts although it is willing to discuss flexibility in terms of debt repayment.

“We know the situation in Greece is tremendously bad and this time it’s not about the banks but about the citizens. We can’t spend days debating. The conventional medicine is there … but now it’s up to Greece to come forward with what they think should be an acceptable agreement.”

Greek debt reduction is not on Germany’s agenda while Italian Prime Minister Matteo Renzi said tomorrow’s meetings must result in a concrete solution for Greece “which is in a very difficult economic and social situation”.

Renzi said that for months, Italy had pushed for discussions not to focus only on austerity and balances but also on growth, infrastructure, and common policies on migration, innovation and environment.

“It should be about values and not just numbers. Europe will be over if we remain prisoners of regulations and red tape.”

What's next?

According to economist Philip von Brockdorff, head of the economics department at the University of Malta, the creditors will insist on evidence that the Greek Government is serious about structural reform while at the same time implementing fiscal measures to start addressing fiscal imbalances.

“If creditors are not satisfied, they will not enter into a new bailout agreement leaving Greece and its people facing cash shortages which would grind the already depressed economy to a halt. Without an extension by the ECB of emergency liquidity for insolvent Greek banks, the Greek economy will collapse giving rise to a humanitarian crisis,” he said.

The European Central Bank has yet to announce whether it has decided to pump in more funds into the Greek banks.

“At this stage, the Greek Government would turn to its Central Bank to provide guarantees for the Greek banks and this would in effect be a step away from Grexit with all the economic uncertainty this would give rise to,” Von Brockdorff said.

“The Eurozone would survive Grexit as it now has the mechanisms to deal with such a crisis but it would still be a blow to the EU and its Eurozone members. In such a scenario, recovering loans and guarantees provided to previous Greek governments would appear impossible.”

He was however categorical in that recovering all the Greek debt with a new bailout agreement would also prove impossible. As the IMF has concluded in its latest report on Greece, some form debt restructuring “is inevitable”.

The economist said it was difficult to predict whether Greece can ever recover:

“With a Grexit, the Greek economy will need to readjust to a new domestic currency and a new economic reality outside the Eurozone. Seeking loans in the international markets (other than Russia and China) can almost be ruled out and the months ahead would further slide the Greek economy into deeper recession. This is inevitable and adjustment will inflict further pain on the Greek people.

“However, with a new currency, the Greek Monetary Authorities would devalue the new currency and in time enhance the competitive edge of an economy heavily reliant on tourism.  If so, and the Greek economy (assuming it is unshackled by the heavy debt incurred as a Eurozone member) shows signs of recovery, it could prove that there is life outside the Eurozone and provide a test case for countries such as Spain and Italy where support for non-mainstream political parties is growing.”

Economist Gordon Cordina said the No vote indicates that, before asking sacrifices from the people, economic policy should make sure that there are enough jobs and incomes out of which those sacrifices can effectively be made.

"It seems that the austerity which has so far been imposed was on the wrong section of the population, or was done in the wrong manner, judging by results," he said.

"Greece requires deep economic restructuring first and foremost, which will generate investment and create jobs, out of which the income and wealth to repay the debt will be generated. This restructuring (e.g. labour market flexibility, reduced job security, tighter fiscal compliance, curbing of monopolistic practices and prices) will require sacrifices by some, and perhaps by many, but at least they would be in the right direction. It should also be accompanied by an investment programme, so as to breathe life in the economy."