Greece prepares to reopen banks

ATHENS -- Greece prepared Sunday to restart its struggling economy with a revamped government, a bank reboot and a new round of tax hikes agreed after months of fraught confrontation with its creditors.

Banks are set to reopen Monday after a three-week shutdown estimated to have cost the economy some $3.3 billion in market shortages and export disruption.

Crisis-hit Greeks will also have to endure widespread price hikes with a broad batch of goods and services -- from sugar and cocoa to condoms and funerals -- now taxed at 23 percent, up from 13 percent.

The measures are part of a tough fiscal package Greece had to agree to last week to earn a three-year bailout from its international creditors and avoid crashing out of the eurozone.

The austerity package caused a mutiny among lawmakers of the ruling radical Syriza party, forcing Prime Minister Alexis Tsipras to carry out a limited reshuffle on Friday.

Even so, most analysts and even government officials say early elections are now inevitable, and are likely to be held in September.

Tsipras -- who barely has time to eat or sleep, according to his mother -- faces a fresh challenge in parliament on Wednesday to approve a second wave of reforms tied to its economic rescue.

The leftist government has agreed to raise taxes, overhaul its ailing pension system and commit to privatizations it had previously opposed, in exchange for a bailout of up to $94 billion over the next three years.

The draconian agreement -- accepted by a party that came to power in January promising to end austerity -- came after over 61 percent of Greeks on July 5 rejected further cuts in a referendum called by Tsipras himself.

His critics accuse the prime minister of kowtowing to blackmail by Greece's creditors, who had threatened to expel the country from the euro.

"The commission is prepared for everything... We have a Grexit scenario, prepared in detail," European Commission head Jean-Claude Juncker had warned on July 8.

The Kathimerini newspaper on Sunday said the "Grexit" plan, which also entailed Greece's expulsion from the Schengen Treaty, had been secretly prepared in less than a month by a 15-member European Commission team.

French Finance Minister Michel Sapin on Sunday insisted that the "real humiliation would have been for Greece to have been kicked out of the euro."

"There was a real confidence problem... now this confidence is being restored," Sapin told the To Vima weekly.

The Greek crisis exposed a rift between the eurozone's top powers, Germany and France, on how far to apply austerity to meet fiscal goals.

French President Francois Hollande on Sunday called for the euro's governance to be "strengthened," calling for "the addition of a specific budget and a parliament to ensure democratic control."

Commentators say the lack of centralized governance over national fiscal policies -- a jealously-guarded sovereignty area for member governments -- is a major flaw in the single European currency.

Greece is also scheduled Monday to repay 4.2 billion euros to the European Central Bank (ECB).

For this purpose, the EU on Friday approved a short-term loan of 7.16 billion euros, which will also enable Athens to repay debts to the International Monetary Fund outstanding since June.

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Greece licks wounds after bailout vote, ECB move expected

ATHENS - Greece awoke with a political hangover on Thursday after parliament approved a stringent bailout program, thanks to the votes of the pro-European opposition, amid the worst protest violence this year.

The vote, vital to unlocking emergency financing from European partners as early as Thursday, left Prime Minister Alexis Tsipras weakened by a revolt in his leftist Syriza party but clinging to power for now.

The European Central Bank's governing council, meeting in Frankfurt, was expected to ease its funding squeeze on shuttered Greek banks, the first step toward permitting them to reopen after nearly three weeks' closure while cash rationing and other capital restrictions will remain in place.

European finance ministers were to hold a conference call on Thursday morning to agree on a plan for 7 billion euros in bridging funds to enable Greece to meet its immediate debt service needs and avoid defaulting on the ECB next Monday.

All 28 EU countries are expected to contribute, despite the reluctance of non-euro members such as Britain and the Czech Republic, after a compromise was found to use euro zone funds to guarantee their ring-fenced contributions.

Tsipras won 229 out of the 300 parliamentary votes in favor of the agreement he struck on Monday with euro zone partners on austerity measures and liberal economic reforms tougher than those rejected by voters in a July 5 referendum.

Some of the key measures, including an increase in value added tax, take effect immediately, although it will only be extended to hotels in October, after the tourist season.

But 32 out of his radical left Syriza's 149 lawmakers voted against the plan, six effectively abstained and one was absent, leaving the government without a majority of its own supporters.

"Tsipras continues wounded, until further notice," the front page of left-leaning Efimerida Ton Syntakton said. "Governments fall when they lose the support of the people, he says."

Among the dissenters were four members of the government, one of whom resigned, the speaker of parliament, and outspoken ex-finance minister Yanis Varoufakis, who compared the Brussels deal to the 1919 Versailles Treaty that imposed unpayable reparations on a defeated Germany after World War One.

'FORCED TO ACCEPT'

Tsipras told lawmakers he had accepted a package he did not believe in and which would harm Greece, but the only alternative was a disorderly bankruptcy that would be more catastrophic.

"I acknowledge the fiscal measures are harsh, that they won't benefit the Greek economy, but I'm forced to accept them," he said before the vote in the early hours of Thursday.

He is expected to reshuffle his cabinet to remove dissident leftists but he has ruled out early elections and said this week the captain does not leave the ship in a storm.

German Finance Minister Wolfgang Schaeuble, one of the toughest critics of Greece in the euro zone, said on German radio he still believed Athens would do better to leave the currency area temporarily to receive a debt writedown.

But Schaeuble said he would vote in favor of opening talks on a third bailout loan for Greece "with full conviction" when the German Bundestag debates the plan on Friday.

"We are a step further," Schaeuble told Deutschlandfunk radio after the Greek parliament voted to approve the entire package demanded by European partners. "This is an important step."

He said it would be hard to make Greece's debts sustainable without a "haircut" or writedown on the principal by European lenders, which Berlin says would be illegal under EU treaties.

The International Monetary Fund highlighted the issue in a stark report released this week, saying the only alternatives to "deep upfront haircuts" would be for European lenders to grant Athens a 30-year debt service holiday on present and future loans or make large annual fiscal transfers to the Greek budget.

All those options are deeply unpalatable to German and other euro zone creditor governments that do not want to tell their taxpayers that the money lent to Greece is not coming back.

Klaus Regling, head of the euro zone's bailout fund, said he expects it to contribute 50 billion euros to the third bailout of up to 86 billion euros.

"If everything should fail, then the Greek banking system will collapse," Klaus Regling, head of the European Stability Mechanism, told German broadcaster ARD.

The rest would come from 16 billion euros in remaining undisbursed IMF funds, once Athens has cleared arrears to the global lender, as well as privatization receipts and possible limited borrowing on the market near the end of the three-year program.

In Athens, cleaners removed overnight the debris of a pitched battle on the central Syntagma Square outside parliament between black-masked anti-bailout militants and riot police.

Protesters threw dozens of petrol bombs and hurled stones at the police, who responded with clouds of tear gas.

Tsipras won the vote thanks to the support of the center-right New Democracy, center-left Pasok and centrist To Potami opposition parties.

"The responsible opposition assumed the burden to rescue the country as did the prime minister, even though it was at the last minute," the conservative daily Kathimerini said in an editorial. "He deserves credit for this, but he lost the support of a large part of his party's lawmakers."

"He now has the big responsibility to ensure the country will have a government that keeps its pledges to creditors and implements them. Otherwise, his bold step will stall and with it the country’s European prospects," the paper said.

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Greece accepts reforms needed to get bailout

ATHENS - The Greek parliament passed sweeping austerity measures demanded by lenders to open talks on a new multibillion-euro bailout package to keep Greece in the euro, but dozens of hardliners in the ruling Syriza party deserted Prime Minister Alexis Tsipras.

The package was approved with 229 votes in the 300-seat chamber. There were 64 votes against it and six abstentions. But Tsipras required the support of pro-European opposition parties to push the measure through, leaving a question over the future of his government.

Tsipras said there was no alternative to the package, which he acknowledged would cause hardship, but he stood by the decision. "I am the last person to shirk this responsibility," he told parliament.

Government spokesman Gabriel Sakellaridis acknowledged the vote laid bare a split in Syriza, but he said the government's priority was to secure the bailout, suggesting that there would be no immediate move towards new elections.

In exchange for funding worth up to 86 billion euros ($94 billion), Greece has accepted reforms including significant pension adjustments, increases to value added taxes, an overhaul of its collective bargaining system, measures to liberalize its economy and tight limits on public spending.

It has also agreed to sequester 50 billion euros of public assets in a special privatization fund to act as collateral on the deal.

The measures were branded "social genocide" by the firebrand speaker of parliament Zoe Constantopoulou and there were violent clashes between protestors and police outside parliament as the debate went on before the vote.

Among the 38 Syriza rebels was former Finance Minister Yanis Varoufakis, who was sacked by Tsipras last week and who denounced the bailout deal as "a new Versailles Treaty" - the agreement that demanded unaffordable reparations from Germany after its defeat in World War One.

Energy Minister Panagiotis Lafazanis and Deputy Labor Minister Dimitris Stratoulis also voted against the package.

Amid speculation that both ministers could lose their jobs in a reshuffle, possibly as early as Thursday, Lafazanis said he remained loyal to the government but was ready to offer his resignation, joining Deputy Finance Minister Nadia Valavani, who stepped down earlier on Wednesday.

"We support Syriza in government and we support the Prime Minister. We don't support the bailout," he said after the vote.
Elected in January on an anti-austerity platform, Tsipras made an about-turn following grueling all-night negotiations in Brussels on Monday, giving in to lenders' demands for immediate reforms to prevent a chaotic exit from the single currency.

Speaking in parliament before the vote, Tsipras made clear he was supporting the package against his will but there was no alternative if Greece was to avoid financial collapse.

"I acknowledge the fiscal measures are harsh, that they won't benefit the Greek economy, but I'm forced to accept them," he said as he made a final appeal for support.

'A NEW VERSAILLES TREATY'

With Greek parliamentary approval secured, the way has been cleared for other national parliaments to approve the start of bailout talks and for the release of funding to allow Greek banks to re-open, more than two weeks after capital controls were imposed to prevent them from collapsing.

Eurozone finance ministers are due to hold a conference call on Thursday at 10 a.m. (0800 GMT) to discuss the vote.

With Greece facing an urgent deadline on July 20, when a 3.5 billion euro payment to the European Central Bank is due, EU officials raced to agree a bridge financing accord that would enable Athens to avoid defaulting on the loan.

Despite strong objections from Britain and the Czech Republic - EU countries that do not use the euro - a 7 billion euro loan is expected to be extended to Greece from the European Financial Stability Mechanism (EFSM), an EU-wide fund not intended for euro zone funding needs.

Given the hurdles facing the agreement, doubts have surfaced about how long it could hold together, with one senior European Union official saying it had a "20-, maybe 30-percent chance of success".

After its deepest crisis since World War Two, the Greek economy has lost more than a quarter of its output and more than one in four of its workforce is unemployed. It is unclear how it can sustain the burden of one of the most far-reaching austerity programs ever imposed on a euro zone country.

A study by the International Monetary Fund issued on Tuesday called for much more debt relief than Greece's euro zone creditors, particularly Germany, have been prepared to accept so far.

Berlin, which along with the other creditors knew about the IMF study before agreeing to new bailout talks, may wince at providing huge debt relief to a country it scarcely trusts to honor its promises.

But Germany insists on having the IMF in the negotiations to help keep Greece in line. It may countenance extending repayment periods for Greek debt but has said it will not accept a writedown, with the finance ministry insisting it could not accept "a debt haircut via the backdoor".

'EUROPE'S BANKRUPT CHILD'

The European Commission published its own assessment of Greece's debt burden on Wednesday that also offered the prospect of debt relief. While ruling out any write-offs, the Commission said debt reprofiling was possible, as long as Greece implemented the reforms to which it has agreed.

Washington has stepped up pressure for a deal between the euro zone and NATO member Greece. U.S. Treasury Secretary Jack Lew is making a short-notice trip to Frankfurt, Berlin and Paris this week to press for a quick agreement.

Although the bailout package is much tougher than the Greek people could have imagined when they resoundingly rejected a previous offer from the creditors in a referendum on July 5, most want to keep the euro.

With banks shut and the threat of a calamitous exit from the currency bloc hovering over the country if it cannot conclude a deal, many Greeks see the package as the lesser of two evils.

"We are Europe's bankrupt child and as a child, Europe has been supporting us for five years and told us what we needed to do to get out of this situation," said Yannis Theodosis, a 35-year-old civil engineer. "We did nothing and now we are paying the consequences."

Civil servants held a strike on Wednesday, as did pharmacists, whose industry would be opened up under the reform package, in demonstrations that passed peacefully until a small group threw petrol bombs at police, who responded with tear gas and flash bombs.

Calm later returned but nearby streets were empty and garbage bins were still burning. About 30 people were detained, according to a police source.

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Index surges as Greece reaches deal with creditors

MANILA - Share prices rallied yesterday as optimism prevailed after euro zone leaders clinched a deal with Greece to negotiate a third bailout plan.

The benchmark PSEi closed at 7,496.33, surging 103.74 points or a change of 1.40 percent.

The All Shares index closed at 4,268.78, higher by 41.57 points or 0.98 percent. All other indices closed higher with the mining and oil, property and the holding firms indices recording the biggest gains.

Value turnover amounted to P4.764 billion, down from Friday’s P6.790 billion.

“If all things push through as planned, that could reduce volatility in currencies and might prompt funds to reposition anew in equities,” said Grace Cerdenia, Research head at F. Yap Securities.

European leaders held yesterday a 17 -hour session, which has been described as one of the most contentious diplomatic standoffs in European Union history before finally reaching an agreement in Brussels.

According to reports, the agreement would require approval from European parliaments.

As part of the agreement, Greece must push through parliament a series of cuts and reforms, including divisive overhauls of its pension and tax system.

Read more on Philippine Star.

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Euro dips, markets mostly up as Greece talks drag on

HONG KONG, China - The euro edged down Monday but stock markets mostly rose as European leaders presented Greece with a painful set of demands to secure a debt bailout or face a eurozone exit.

Traders also took some support from figures showing a pick-up in Chinese exports that tempered worries about the country's economy and provided some stability to Shanghai stocks after weeks of fierce volatility.

During the high-stakes summit talks, Germany and other eurozone leaders handed Greece a brutal ultimatum for desperately needed bailout cash Sunday, with Chancellor Angela Merkel pushing for a temporary euro exit -- or "time out" -- if it does not agree.

However, there was still no agreement early Monday morning despite more than 10 hours of talks, with Greece's economy and banking system at risk of imminent collapse.

Athens said the plans were "very bad", but with its lenders on the brink it looked to have little choice but to bow to reform demands that effectively rob it of control of much its finances.

In Japanese trade the euro dipped but managed to stave off heavy losses as the talks continued in Brussels.

It eased to $1.1125 from $1.1149 in New York late Friday. In earlier electronic trading, the single currency fell as low as $1.1089. It was also at 136.40 yen compared with 136.58 yen in US trade.

"Market reaction in the euro is surprisingly muted," said Steven Englander, global head of Group-of-10 currency strategy at Citigroup.

"The absence of agreement and toughness of terms are eye-catching, but investors are waiting for the outcome more than trying to anticipate it."

On share markets Tokyo was up 1.21 percent, Seoul added 0.52 percent and Sydney gained 0.41 percent.

China trade boost

Shanghai rose 0.52 percent, extending a rebound at the end of last week that came after weeks of extreme volatility, with investors settled by government moves last week to prevent a market crash.

But Hong Kong lost 0.50 percent after climbing almost six percent over Thursday and Friday.

While Greece's future in the eurozone hangs in the balance, attention is also on China, which releases its crucial trade statistics later in the day.

China's stock market rose in the previous two sessions but dealers remain nervous after a month of massive selling that has seen the Shanghai Composite index fall about 30 percent, wiping trillions of dollars off valuations.

Investors welcomed an upbeat trade report that showed exports increased more than expected in June.

"Imports improved significantly in June because of lower import duties," said Liu Xuezhi, an economist with Bank of Communications Co. in Shanghai, told Bloomberg News. "Exports are expected to maintain modest growth in coming months to help the economy."

But Sam Tuck, a senior currency strategist in Auckland at ANZ Bank New Zealand Ltd., added: "We've got a watching brief on China. It's positive that the authorities didn't feel the need to do anything over the weekend but markets are still clearly nervous and we need to see most of the stock market open.

"There's still lots of halts."

The sell-off spread to other regional markets on fears for the world's number two economy and key driver of global growth.

On oil markets, US benchmark West Texas Intermediate for delivery in August fell 80 cents to $51.94 and Brent dropped 87 cents to $57.86.

Gold fetched $1,162.32 compared with $1,163.50 late Friday.

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Greek PM urges parliament to approve new reforms

ATHENS, Greece - Greek Prime Minister Alexis Tsipras urged parliament early Saturday to approve a reform package offered to the country's creditors, to keep the nation 'alive' and in the European Union.

His call for a vote of "national responsibility" came as an EU source in Brussels said the country's latest debt proposals were "positive" enough to form the basis of a massive new bailout worth 74 billion euros ($82 billion).

Tsipras spoke as parliament prepared to vote on his controversial package of reforms, which have sparked criticism from hardline members of his radical left ruling party Syriza.

Most opposition parties however have expressed willingness to back them.

"It is a choice of high national responsibility, we have a national duty to keep our people alive...we will succeed not only to stay in Europe but to live as equal peers with dignity and pride," Tsipras said.

His government is asking Greece's international creditors for a three-year funding plan including debt relief and a separate 35-billion-euro investment package.

Despite growing anger in Greece over austerity, Tsipras caved in to demands by the creditors for a pension overhaul, tax hikes and privatizations.

A 'positive' evaluation

The concessions have brought relief from many quarters. In Brussels, an EU source who asked not to be named said "there has been positive evaluation of the Greek program."

The EU's bailout fund, the European Stability Mechanism, was ready to consider putting up 58 billion euros plus 16 billion euros from the International Monetary Fund for what would be a third debt rescue, the source said.

This would now go to the Eurogroup of 19 eurozone finance ministers who meet Saturday but it stood only a "50-50" chance of approval due to opposition by hardliners such as Germany who oppose any debt relief for Athens.

The Greek proposals fail to meet international demands on some thorny issues, including tax breaks for Greece's islands and cuts to military spending.

Speaking ahead of an EU summit called Sunday for a final decision, Tsipras admitted mistakes had been made but insisted the new proposals were the best possible deal for Greece.

Debt mountain

"The loan deal...entails many proposals that are far from our pledges, from what we feel is right for the recovery of the economy," the prime minister said.

But it was "marginally better" than proposals put forward by the creditors last month that did not offer debt relief from Greece's suffocating 320-billion-euro ($350-billion) mountain of debt.

Finance Minister Euclid Tsakalotos said the government wanted parliament's approval "to strengthen the country's bargaining position, to achieve better terms in the agreement."

But the Greek leader also risks alienating large numbers of the ruling party's supporters, who rejected in a national referendum last Sunday a very similar set of proposals put forward by Greece's creditors.

Some 8,000 people gathered in Athens ahead of the parliamentary vote to protest against more austerity, police said.

In a bid to head off a possible challenge to the measures within his hard-left party Syriza, Tsipras urged lawmakers "to stand united and firm in front of these important decisions."

Euro, markets soar
Earlier, France and Italy welcomed the new proposals, with French President Francois Hollande calling them "serious and credible" while cautioning that "nothing is decided yet."

Italian Prime Minister Matteo Renzi declared himself "more optimistic" that a deal would be done.

But Germany said the outcome of this weekend's crisis talks was "completely open."

Berlin leads a bloc of hardline eurozone nations saying that, after two bailouts over the past five years totalling 240 billion euros, and 107 billion euros in debt forgiveness in 2012, Greece is looking like bottomless money pit.

The possibility of a breakthrough sent stock markets soaring in Europe, Asia and the US on Friday.

Meanwhile the euro briefly rose above $1.12 for the first time in July before falling back slightly in later trade, still up at $1.1152.

Although Greek voters last Sunday roundly voted "No" to accepting tough austerity terms for a bailout that expired June 30, they are alarmed at capital controls that have closed banks and rationed ATM cash.

They also overwhelmingly want to keep the euro.

"The government has to find a deal with its European partners no matter what. We didn't vote 'No' to leave the eurozone," said a pensioner in Athens, Nikos Eftekidis.

But another pensioner, Giorgos, said the "government's proposed measures are very tough, I wasn't expecting that. That's not what the Greeks voted for."

source: www.abs-cbnnews.com

Lagarde: A new Greece program needs debt restructure

WASHINGTON. United States - International Monetary Fund Managing Director Christine Lagarde said Wednesday that a new program to prop up Greece's finances would require creditors to restructure debt.

In addition to the reforms Athens needs to undertake, she said, "the other leg is debt restructuring, which we believe is needed in the case of Greece for it to have debt sustainability."

"Greece is in a situation of acute crisis which needs to be addressed," she told a conference in Washington.

Despite the fact that Greece defaulted on its debt to the IMF on June 30, Lagarde assured that the institution "remains fully engaged in order to help find a solution."

In a report last week the IMF said Greece's official EU creditors should double the payback period for Greece's debts and stump up another 36 billion euros ($40 billion) to ensure the country's finances remain sustainable.

But the European Commission and the European Central Bank are pressing the country hard to accept a package of austere fiscal and policy adjustments that Athens has so far refused to accept.

Lagarde said the numbers themselves "will have to be revisited," but added that Greece, which no longer has access to IMF resources since its default, should not benefit from any special treatment.

"It is certainly my view that the IMF has to follow its rules, should not bend its rules and should be always even-handed."

She justified the Fund's continued participation in new aid talks for Greece even if Athens has been a severe critic of the institution.

"I have heard talk here and there in France saying, 'but what is the IMF doing in this situation? It should be handled by the Europeans,'" she told reporters.

"At the time when I was (France's) finance minister I also supported this viewpoint."

But, she said, the IMF is involved "because the IMF was asked by Greece to be involved."

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Greece votes in referendum with future in euro in doubt

ATHENS - Greece votes on Sunday on whether to accept more austerity in exchange for international aid, in a high-stakes referendum likely to determine whether it leaves the euro-currency area after seven years of economic pain.

Staged against a backdrop of shuttered banks and threats of financial apocalypse, the vote is too close to call and may not produce the clear mandate for negotiations that Athens' creditors seek.

Greeks are split on whether to accept an offer by creditors that Prime Minister Alexis Tsipras calls a "humiliation" and is urging people to reject. Investors and European policymakers say a rejection would set Greece on a path out of the euro, destabilizing the global economy and financial markets.

"On Sunday we should all send a message of democracy and dignity to the world," Tsipras told tens of thousands of Greeks rallying for a 'no' vote before campaigning ended.

Voting on whether to accept more taxes and pension cuts would be divisive in any nation, even at the best of times.

In Greece, the choice is faced by an angry and exhausted population who, after five years of crippling austerity, have now suffered through a week of capital controls imposed to prevent the collapse of the nation's financial system.

Pensioners besieging bank gates to claim their retirement benefits, only to leave empty-handed and in tears, have become a symbol of the nation's dramatic fall over the past decade.

Eleven years ago, in the early morning of July 5, 2004, Greeks poured into the streets, united in celebration of their country's victory in the European Cup soccer tournament. Today, Greece is divided -- and scared -- as rarely before.

"There is an atmosphere of fear. You can just feel it," said Sarafianos Giorgos, a 60-year-old teacher in Athens, who says he will vote in favour of the creditors' proposals.

Polls open at 7 a.m. local (0400 GMT) and shut at 7 p.m, with the first official projection of the result expected at 9 p.m.

Four opinion polls published on Friday showed the 'Yes' vote marginally ahead. A fifth put the 'No' camp 0.5 percentage points in front. All were well within the margin of error.

Anxious Greeks rallying for a 'Yes' vote agree Greece has been handed a raw deal but say the alternative, a collapse of the banks and a return of the old drachma currency, would be worse.

Those pledging to deliver a rousing 'No' to tax hikes and pension cuts in return for more loans say Greece cannot afford more of the austerity that has left one in four without a job. They agree with Tsipras that Europe is "blackmailing" Greece.

"As a Greek woman, I am embarrassed at those who are going to vote 'Yes' for fear of leaving the euro. They are asking us to accept unending slavery. I am offended," said Tenekidou Ermioni, a 54-year-old teacher.

NIGHTMARE RESULT

Greeks are likely to face more financial and political turmoil in the days and weeks ahead.

"All in all, Prime Minister Alexis Tispras' early exit from office is still more likely than Grexit," wrote Wolfgang Piccoli of Teneo Intelligence.

"Regardless of Sunday's result, significant levels of political volatility are here to stay."

Finance Minister Yanis Varoufakis promised Greeks on the eve of the vote that European creditors would immediately have to grant Athens better terms, including massive debt relief and less austerity, if they voted 'No'. EU ministers and officials have warned that his pledge is a cruel illusion.

If Greeks vote 'Yes' to the bailout, both Tsipras and Varoufakis are expected to resign -- triggering a new chapter of uncertainty as political parties try to cobble together a national unity government to keep talks with lenders going until elections are held.

European creditors have said a 'Yes' vote will resurrect hopes of aid to Greece. But capital controls, and default last week to the IMF, have undermined Greece's economic standing and creditworthiness, so a new bailout package would probably entail harsher terms than those on offer even last week.

A 'No' vote would bring even greater uncertainty, and the prospect of a sudden financial collapse.

European policymakers have openly warned such a result would be read as a rejection of talks with creditors and the euro, leaving Greece to fend for itself without any realistic prospect of funds to avoid bankruptcy.

Much would depend on the European Central Bank, which will review on Monday morning its policy on emergency liquidity, which Greek lenders rely on.

The ECB could decide to freeze the liquidity or cut it off altogether if Greeks vote 'No', or if Athens subsequently defaults on a bond redemption to the ECB on July 20.

There is concern that an inconclusive result might sow further confusion, and possibly lead to violent protests, rather than sending a clear signal about Greek intentions.

"The nightmare result would be 51-49 percent in either direction," a senior German official said. "And the chances of this are not insignificant."

(Additional reporting by Noah Barkin in Berlin and Lefteris Karagiannopoulos; Writing by Deepa Babington; Editing by Alessandra Galloni and Andrew Roche)

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Crying Greek pensioner: The story behind the poignant photo

THESSALONIKI, Greece - Retiree Giorgos Chatzifotiadis had queued up at three banks in Greece's second city of Thessaloniki on Friday in the hope of withdrawing a pension on behalf of his wife, but all in vain.

When he was told at the fourth that he could not withdraw his 120 euros ($133), it was all too much and he collapsed in tears.

The 77-year-old told AFP that he had broken down because he "cannot stand to see my country in this distress".

"That's why I feel so beaten, more than for my own personnel problems," Chatzifotiadis said.

The image of him sitting outside the bank, openly crying in despair with his savings book and identity card on the floor, was captured by an AFP photographer illustrating how ordinary Greeks are suffering during the country's debt crisis.

Athens had imposed capital controls and shut all banks since Monday to stem a haemorrhage of cash, but on Wednesday allowed some branches to reopen for three days so retirees who have no bank cards could withdraw their pensions -- capped at 120 euros.

Recounting how he had gone from bank to bank in a futile attempt to collect his wife's pension, Chatzifotiadis said when he was told at the fourth "that I could not get the money, I just collapsed".

Both he and his wife, like many Greeks in the north of the country, had spent several years in Germany where he "worked very hard" in a coal mine and later a foundry.

And it is to Berlin, which is being blamed by many in Greece for its hardline stance in demanding the government impose more austerity measures for fresh international aid, that Chatzifotiadis is sending his wife's pension.

"I see my fellow citizens begging for a few cents to buy bread. I see more and more suicides. I am a sensitive person. I cannot stand to see my country in this situation," he said.

"Europe and Greece have made mistakes. We must find a solution," he added.

But Chatzifotiadis feels he can do little to change the situation, and he is not even sure if he would be able to vote at Sunday's referendum on whether to accept international creditors' bailout conditions.

European leaders have warned that a 'No' vote would also mean no to the eurozone.

Pointing out that the polling station is 80 kilometers (50 miles) away, Chatzifotiadis said: "I have no money to go there, unless perhaps if my children would take me in their car."

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