Greek Prime Minister Alexis Tsipras signaled he’s ready to end his standoff with creditors as the country gets a taste of financial meltdown.

German Chancellor Angela Merkel, Europe’s dominant leader, refused to engage until after a July 5 referendum called by Tsipras on budget cuts demanded by creditors.

It took a third day of capital controls, rationing pensions and the expiry of Greece’s bailout for the government in Athens to say it’s willing to accept his adversaries’ latest offer as a basis for compromise. The looming vote was the major stumbling block, along with disagreements over pensions, spending and taxes.

“This is not quite the climbdown it seems,” said Peter Chatwell, a strategist at Mizuho International Plc in London. “I strongly doubt Europe will accept this proposal and if Europe sticks to its guns and waits for the referendum, the greater the chance that the government fails.”

Merkel and her finance minister, Wolfgang Schaeuble, burned by five months of brinkmanship, said there would be no immediate talks.

“There can be no negotiations for a new credit program before the referendum,” the chancellor told lawmakers in a speech opening a parliamentary debate on Greece. The country has provided “no basis for talking about any serious measures” to break the deadlock, Schaeuble told reporters.

Talks broke down at the weekend with Tsipras taking European leaders and his own country by surprise and declaring he would hold a public vote. As the politics and posturing continued, the difference now is that Greeks are divided between defiance and desperation as cash machines run dry and the economy begins to buckle.

David Fuller's view

The revolutionary hubris is over.  No doubt Greece has some credible politicians but they are not in the current government.  More importantly, Greece is not without capable, internationally sophisticated business leaders who will return from the sidelines once the current impasse is resolved.

A ‘Yes’ vote in the hastily announced and inadequately explained Greek referendum might lessen current misery at Greece’s ATMs.  This was a desperate gamble by Tsipras who presumably hoped EU leaders would capitulate once again, faced with the probability of a ‘No’ vote which he has recommended. 

However, the polls have shifted.  The referendum result may be close but the reality of empty pockets and chaos on the streets has lessened the appetite for revolution.  Interestingly, here is another potentially revealing headline: Paddy Power Pays Out on Greece Voting ‘Yes’ Four Days Early.  Bookmakers can be wrong and early payouts create publicity which they hope will lead to additional bets.  Nevertheless, bets received have heavily favoured the ‘Yes’ vote.

If the bookmakers are right, Tsipras should be resigning after Sunday’s vote, as EU officials are hoping.  They could presumably work with a less revolutionary provisional government, reopening banks and freeing up loans for Greece in the process. 

Meanwhile, some commentators are saying that Tsipras might cancel the referendum or throw his diminishing weight behind a ‘Yes’ vote.  While this seems unlikely to me, presumably either of these moves would further reduce his influence.

While there have been plenty of last minute changes in the tortuous Greeks / EU official negotiations over the last several months, we currently have a lull until Monday morning, when the referendum result will be known.  I assume that a ‘Yes’ vote would be well received by markets, not least in Europe, in contrast to a ‘No’ vote.   

Additionally, Finance Minister Yanis Varoufakis has already said he will resign if voters do not support the government’s call for a ‘No’ vote.  If, and this may be a big if, Prime Minister Alexis Tsipras also resigned following a ‘Yes’ vote, European markets could experience strong rallies from oversold conditions.  Germany’s DAX Index (weekly & daily) is already marginally oversold and may extend this condition on Friday.  The same can be said for the Euro STOXX Index (weekly & daily), and most other European indices.  

The DAX and Euro STOXX Indices have also returned to their rising 200-day (40-week) MAs, where some support is being encountered.  The fact that they fell back to these levels more slowly than they rose to their April highs, suggests we are seeing no more than a temporary correction.  If Greece votes to stay in the Euro, as polls currently suggest, concern about Grexit will diminish and be replaced by renewed interest in European markets on the basis of valuations and especially Mario Draghi’s ongoing QE of €60bn per month.