Greece imposes capital controls as crisis deepens

Tuesday, 30 June 2015 00:53 - - {{hitsCtrl.values.hits}}

Greece closed its banks and imposed capital controls on Sunday to check the growing strains on its crippled financial system, bringing the prospect of being forced out of the euro into plain sight.

After bailout talks between the leftwing government and foreign lenders broke down at the weekend, the European Central Bank froze vital funding support to Greece’s banks, leaving Athens with little choice but to shut down the system to keep the banks from collapsing.

Banks will be closed and the stock market shut all week, and there will be a daily 60 euro limit on cash withdrawals from cash machines, which will reopen on Tuesday. Capital controls are likely to last for many months at least.

17-1 “The more calmly we deal with difficulties, the sooner we can overcome them and the milder their consequences will be,” a sombre-looking Prime Minister Alexis Tsipras said in a televised address. He promised bank deposits would be safe and salaries paid.

Even as Tsipras spoke late on Sunday, lines formed at petrol stations and the dwindling number of bank machines still holding cash, highlighting the scale of the disaster facing Greeks, who have endured more than six years of economic decline.

The failure to reach a deal with creditors leaves Greece set to default on 1.6 billion euros ($ 1.76 billion) of loans from the International Monetary Fund that fall due on Tuesday. Athens must also repay billions of euros to the European Central Bank in the coming months.

The impending default on the IMF loans leaves Greece sliding towards an exit from the euro, with unforeseeable consequences for Europe’s common currency project. It also carries broad implications for the global financial system.

The euro fell almost 2% against the dollar in early Monday trade and share prices tumbled, while safe-haven US government debt futures rallied.

The yen, which tends to gain at times of financial stress, strengthened against the dollar to a one-month high of 122.10. “We are in uncharted territory, and European equities, like all markets, will have a difficult time processing this,” said Deutsche Bank Managing Director Nick Lawson.

Blame game

After months of wrangling, Greece’s exasperated European partners have put the blame for the crisis squarely on Tsipras’s shoulders. The 40-year-old premier caught them by surprise in the early hours of Saturday by rejecting the demands of lenders and calling a referendum on the bailout.

The creditors wanted Greece to cut pensions and raise taxes in ways that Tsipras has argued would deepen one of the worst economic crises of modern times in a country where a quarter of the workforce is already unemployed.

After announcing the referendum, Tsipras asked for an extension of Greece’s existing bailout until after the 5 July vote. Euro zone officials refused, and in his televised address Tsipras branded the refusal an ‘unprecedented act’.

Despite the hardening of positions, officials around Europe and the United States made a frantic round of calls and organised meetings to try to salvage the situation.

US President Barack Obama called German Chancellor Angela Merkel, and senior US officials including Treasury Secretary Jack Lew, who spoke to Tsipras, urged Europe and the IMF to come up with a plan to hold the single currency together and keep Greece in the euro zone. The German and French governments announced emergency political meetings.

French Prime Minister Manuel Valls urged the Greeks to come back to the negotiating table.

“I cannot resign myself to Greece leaving the euro zone ... We must find a solution,” Valls told media.

In Asia, policymakers were watching events closely, though the spill over effects appeared limited for now.

17-3

Greece in shock as banks shut after snap referendum call

Athens (Reuters): Greeks struggled to adjust to shuttered banks, closed cash machines and a climate of rumors and conspiracy theories on Monday as a breakdown in talks between Athens and its creditors plunged the country deep into crisis.

Prime Minister Alexis Tsipras, who blindsided creditors by calling a referendum on the austerity cuts in the aid package proposed by the creditors, appeared on television on Sunday night to announce capital controls to prevent banks from collapsing.

Their imposition capped a dramatic weekend for Greece that has pushed the country towards a likely default on 1.6 billion euros ($ 1.77 billion) of International Monetary Fund loans on Tuesday and closer to an exit from the euro currency bloc.

French President Francois Hollande appealed to Tsipras to return to the negotiating table and German Chancellor Angela Merkel said she was willing to talk to the 40-year-old Greek leader if he wanted.

“There are a few hours before the negotiation is closed for good,” Hollande said after a cabinet meeting on Greece.

But with Greece’s bailout program expiring in less than 48 hours, hopes of a last-minute breakthrough were fading fast. Greeks - 17-2. used to lengthy talks with creditors before a eleventh-hour deal materializes - were left stunned.

“I can’t believe it,” said Athens resident Evgenia Gekou, 50, on her way to work. “I keep thinking we will wake up tomorrow and everything will be OK. I’m trying hard not to worry.”

European officials sent confusing signals about their next move. A spokesman for the European Commission told French radio that Brussels would not make any new proposals on Monday, appearing to contradict comments by EU Economics Commissioner Pierre Moscovici. He said a new offer was forthcoming and that the two sides were “only a few centimeters” away from a deal.

European bank shares fell sharply on Monday. Top banks in Spain, France and Germany were down more than 6% as the risk of a spillover to banks in other peripheral euro zone countries spooked investors.

The Greek government will keep banks shut at least until after July 5, the date of the referendum, and withdrawals from automated teller machines were limited to 60 euros a day when they reopened at midday. The stock exchange will also stay shut.

After months of talks, Greece’s exasperated European partners have put the blame for the crisis squarely on Tsipras’s shoulders.

The creditors wanted Greece to cut pensions and raise taxes in ways that Tsipras has long argued would deepen one of the worst economic crises of modern times in a country where a quarter of the workforce is already unemployed.

As Tsipras announced the emergency measures late on Sunday, there were long queues outside ATMs and petrol stations as people raced to take out cash before it was too late. Lines of over a dozen people formed at ATMs when they reopened on Monday.