Greece Rejects Austerity Bailout

(CN) - Greek voters Sunday overwhelmingly rejected another bailout on the European Union's austerity terms - by 61 to 39 percent - leaving European and Greek leaders scrambling, and wondering what comes next.

Prime Minister Alexis Tsipras said the rejection of austerity did not mean Greek wants to leave the Euro zone.

Tsipras said on TV late Sunday after it was clear that the No vote would win: "The mandate that I was given is not for a rupture with Europe, but a mandate boosting our negotiating strength for reaching a sustainable deal."

German Chancellor Angela Merkel and French President Francois Hollande were to meet Monday afternoon in Paris to try to puzzle out what it means for Europe's single currency project. Other European leaders were expected to join them.

Overseas stock markets opened down 2 percent or more and the euro lost about 1 percent against the yen and the dollar. Goldman Sachs predicted last week that a No vote would knock 10 percent off of European stock markets.

The Chinese government, meanwhile, announced it would spend billions to prop up prices on its own slumping stock market, which sank by 12 percent last week. Chinese shares were up early Monday.

The big questions, though, were what would happen to Greece, to the European Union, and to the world financial system.

Greek banks were said to have only 500 million euros on hand in cash - 45 euros for each of its 11 million people. Greek banks had limited their customers' withdrawals to 60 euros a day as the country's referendum approached.

Greece Finance Minister Yanis Varoufakis resigned after the vote, though he supported the No vote that rejected the bailout.

Varoufakis wrote on his blog that he had been "made aware of a certain preference by some Eurogroup participants, and assorted 'partners', for my ... 'absence' from its meetings."

European economists and pundits quickly rejected the possibility that the resignation meant that Prime Minister Tsipras would change course. It was seen rather as a way to ease Greece's return to the negotiating table.

Whether the European Union - Germany and the Netherlands, in particular - would welcome such a return remains to be seen.

Tsipras told the BBC after the vote that the country's strong backing for his Syriza Party could be "potentially helpful" to him in reaching an agreement. He added: "I shall wear the creditors' loathing with pride." Turnout for the special election was 63 percent.

Creditors' 5-years of demands for austerity have left the Greek economy in a shambles, with more than 25 percent unemployment and more than 50 unemployment among the young.

The Syriza Party, and increasingly, others, have pointed out that of the roughly 240 billion euros ($310 billion) Greece has received in bailouts over the past three years, very little - perhaps 10 percent - has gone to the Greek economy. Ninety percent has gone to the creditor banks and governments.

The IMF - the chief bailout partner, and austerity enforcer, along with the European Union - said last week that some "restructuring" of Greek debt would be needed. What that restructuring might be was unclear, but presumably it would mean writing off some of the debt, though the IMF and the EU are both still demanding higher taxes and more pension cuts, among other things.

Greece missed a 1.6 billion euro debt payment to the IMF last week. A 3.5 billion euro payment is due on July 20.

What could happen in coming weeks and months?

Europe, led by Germany, could refuse to soften its austerity demands, knowing, perhaps hoping, that increased turmoil in Greece would force the country to oust Tsipras and Syriza.

Sympathetic members of the EU, such as Italy and Belgium, could persuade the EU to cut some sort of deal with Greece, which would more likely prolong the crisis than end it. The uncertain situation in Greece might put pressure on northern countries to relent, lest other chronic debtors, such as Italy, consider leaving the currency union.

Greece could reinstitute its own currency, the drachma. It surely would be devalued greatly from its pre-EU standing, but having its own currency would allow the country to calibrate it to some extent, to encourage exports. No such calibrations would be needed at first, as the low value would make Greek goods cheap everywhere.

Europe could force Greece out of the Euro Zone - a hostile move that probably would stir up more unrest in Greece, and perhaps elsewhere, than Europe's simply holding firm on austerity and forcing Greece to make the formal exit.

No matter what happens, Greece will be forced to take real steps to start collecting its taxes - a government function that, in Greece as in Italy, has been more honored in the breach than in the observance.

(Reuters, The New York Times, the BBC, The Guardian and The Wall Street Journal contributed to this report.)

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