After Greek vote, euro skids in trading; Asian stocks fall

LONDON -- The euro slid as Greeks rejected a bailout plan, raising the risk of an exit from the currency union that would call into question the integrity of the bloc.

With 100 percent of votes counted in the referendum on austerity measures required in return for financial aid, "no" received 61 percent, data on the Interior Ministry website showed. The euro slid 0.6 percent to $1.1043 at 10:11 a.m. in Tokyo after declining to $1.0970, the lowest since June 29. It earlier declined as much as 1.3 percent.

Early trading on Asian markets indicated investors were alarmed, as stock indexes fell.

With stocks sliding and the dollar rising as a haven, Group of Seven finance chiefs are working on a statement on Greece after Sunday's referendum, according to an official from a G-7 government. While it makes up less than 0.3 percent of the world economy, Greece has added a potential brake on growth by injecting doubts about the permanent cohesion of the eurozone.

Greece accounts for less than 2 percent of the eurozone's output, but an exit would set a precedent for other nations that membership is reversible. The currency has been resilient amid the ebb and flow of Greek bailout talks, gaining 3.9 percent versus the dollar in the three months through June, its best quarter since 2013. That strength may now be at risk.

"The risks the Greek referendum pose to the very heart of the European monetary union have yet to be fully understood," said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking Corp. in Sydney.

European ministers from Berlin to Madrid last week reiterated that a "no" to the latest proposals by creditors would complicate Greece's route out of financial turmoil. If it fails to agree to new financing arrangements, Greece may have to start printing its own currency to keep its financial system operational. On the other hand, euro-area finance ministers may start work on a third bailout agreement even after a "no" vote, two officials familiar with negotiations said last week.

Economists at JPMorgan Chase & Co. and Barclays PLC were among those concluding the referendum results make it more likely than not that Greece will leave the euro. JPMorgan warned the exit could come "under chaotic circumstances."

"I don't think anyone should be in any doubt: The Greek situation has an impact on the European economy, which has an impact on us, and we cannot be immune," U.K. Chancellor of the Exchequer George Osborne told the BBC's Andrew Marr program Sunday, ahead of meeting today of U.K. officials to be chaired by Prime Minister David Cameron.

Bank of Japan Governor Haruhiko Kuroda said this morning that the bank was monitoring developments in financial markets and would keep in close contact with counterparts abroad, along with other domestic agencies.

"Although direct economic and financial linkages between Japan and Greece are limited, the Japanese Government and the Bank of Japan remain fully prepared to deal with possible developments in Greece," Kuroda said in a statement.

Federal Reserve Bank of New York President William Dudley told the Financial Times last week that Greece was a "huge wild card." Dudley and his colleagues have been assessing whether the U.S. job market and economic rebound are strong enough to warrant lifting their benchmark lending rate off of zero, where it has been since December 2008.

Any flight to the dollar as a haven could impair American growth, giving reason for the Fed to hold off for longer.

"We're going to have to wait and see what the fallout is" to determine what Greece means for the Fed, said Jay Bryson, managing director and global economist at Wells Fargo Securities LLC in Charlotte.

For emerging markets, the Greek turmoil poses a head wind at a time when they're already growing at less than half the pace of 2007.

The euro is 9 percent lower this year, after a 12 percent drop in 2014, fueled by a divergence in monetary policy between the euro area and the U.S.

The euro's losses may be limited as new negotiations will keep the hopes of a deal between Greece and its creditors alive, said Valentin Marinov, head of Group-of-10 currency research at Credit Agricole SA's corporate and investment-banking unit in London.

The turmoil has already shown up in currency pairs other than the euro against the dollar. Swiss National Bank President Thomas Jordan said June 29 that the central bank intervened in markets as demand for francs soared after Greece announced plans to hold the referendum. Sweden's central bank lowered its main interest rate and expanded its bond purchases as the turmoil in Greece raised the specter of further krona gains.

Information for this article was contributed by Eshe Nelson, Eleni Chrepa, Emma O'Brien, Craig Torres, Simon Kennedy, Michael Heath and Netty Ismail of Bloomberg News.

A Section on 07/06/2015

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