Crisis-hit Greece imposes capital controls, banks to remain shut
Greek Prime Minister Alexis Tsipras announced Sunday that the country\’s crisis-hit banks will be shut on Monday and capital controls imposed to prevent withdrawals, after cash machines ran dry. Greece is due to make a €1.6bn payment to the International Monetary Fund (IMF) on Tuesday – the same day that its current bailout expires. Greece risks default and moving closer to a possible exit from the eurozone. Greeks have been queuing to withdraw money from cash machines over the weekend. Since Friday night alone, 1.3 billion euros ($1.45 billion) have been withdrawn from the Greek banking system.
Greece\’s five-year financial crisis took its most dramatic turn to date Sunday, with the prime minister announcing Greek banks would remain shut indefinitely and restrictions would be imposed on cash withdrawals.
The decision came on the recommendation of the Bank of Greece, Prime Minister Alexis Tsipras said during a televised address to the nation. He didn\’t immediately say what types of capital controls would be imposed.
The developments have thrown into question Greece\’s financial future and continued membership in the 19-nation shared euro currency — and even the European Union.
For the past two days, Greeks have been rushing to ATMs to withdraw money across the country following Tsipras\’ sudden weekend decision to call a referendum on creditor proposals for Greek reforms in return for vital bailout funds.
The government is urging Greeks to vote against the proposals, arguing that they are humiliating and that they would prolong the country\’s financial woes.
The referendum decision, which was ratified by parliament after a marathon 13-hour session that ended in the early hours of Sunday, shocked and angered Greece\’s European partners. The country\’s negotiations with its European creditors have been suspended, with both sides accusing each other of being responsible.
Earlier Sunday, the European Central Bank decided not to increase the amount of emergency liquidity the lenders can access from the central bank — meaning they have no way to replenish fast diminishing deposits.
"It is now more than clear that this decision has no other aim than to blackmail the will of the Greek people and prevent the smooth democratic process of the referendum," Tsipras said.
"They will not succeed. These moves will have the exact opposite effect. They will make the Greek people more determined in their choice to reject the unacceptable … proposals and ultimatums of the creditors," he said.
The referendum is set for next Sunday. But Greece\’s current bailout expires on Tuesday, and the 7.2 billion euros ($8 billion) remaining in it will no longer be available to Greece after that date.
Without those funds, Greece is unlikely to be able to pay a 1.6 billion-euro ($1.79 billion) International Monetary Fund debt repayment due the same day.
Tsipras said he had renewed a request for the bailout to be extended by a few days to allow for the referendum — a request which was rebuffed during the weekend by Greece\’s European creditors.
Tsipras gave no details of how long banks will remain closed or what restrictions will be placed on transactions. Two financial sector officials said the banks would likely remain shut for several days, and the Athens Stock Exchange would also not open on Monday.
Some European officials called for renewed efforts by both sides.
"We don\’t know — none of us — the consequences of an exit from the eurozone, either on the political or economic front. We must do everything so that Greece stays in the eurozone," French Prime Minister Manuel Valls told France\’s i-Tele TV earlier Sunday.
"But doing everything, that means respecting Greece and democracy, but it\’s also about respecting European rules. So Greece needs to come back to the negotiating table," he said.
On the streets of Athens, reactions to Tsipras\’ referendum call were mixed.
"I have no idea what we are voting for. Yes or no, we don\’t know what to say," 67-year-old Triandafila Bourbourda said as she walked in the capital\’s main Syntagma Square. "I think we shouldn\’t have gone so far to get into this mess."
But Voula Lambrou, attending a Sunday morning church service, said she believed Greece would be better off outside the 28-nation EU.
"If we exit the European Union, I believe things will be very good for Greece," she said. "It will be tough for some time, but we will be able to find strength in order to carry on ahead. We don\’t need the Europeans."
Two opinion polls published Sunday indicated that more Greeks want to stay in the eurozone and make a deal with creditors than want a rupture with the country\’s European partners. Both polls were conducted before Tsipras\’ referendum call, but they provide an indication of public sentiment.
In the poll by Alco for the Proto Thema paper, 57 percent said they believed Greece should make a deal while 29 percent wanted a rupture of ties. A Kapa Research poll for To Vima newspaper found that 47.2 percent would vote in favor of a new, painful agreement with Greece\’s creditors, compared to 33 percent who would vote no and 18.4 percent undecided.
Both polls were conducted from June 24-26 and had a margin of error of about 3.1 percent.
On the banking front, the ECB has said it could reconsider its decision on credit levels.
"We continue to work closely with the Bank of Greece and we strongly endorse the commitment of member states in pledging to take action to address the fragilities of euro-area economies," ECB chief Mario Draghi said.
Yannis Stournaras, governor of the Bank of Greece, said the bank would "take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances."
ECB \’cannot cut off lifeline\’ to Greece: French PM
France\’s prime minister on Sunday warned the European Central Bank against cutting off Greece\’s "lifeline", as the Frankfurt-based institution gathers for emergency talks on the Greek crisis.
"The European Central Bank is independent but … I don\’t think they can cut off the lifeline (to the Greeks). It\’s the Greek people who are suffering," Valls told French TV station iTELE.
Cyprus could agree to write off Greek debt
Cyprus\’ finance minister says his own bailed-out country could consider writing off 330 million euros ($370 million) in rescue loans to Greece if there is a deal with other euro area member nations to lighten the country\’s debt load.
Harris Georgiades said Sunday the amount is significant relative to the small economy of Cyprus, whose banks took a 4.5 billion euro loss after the 2012 decision to write down Greece\’s government bonds.
But he said Cyprus would be "willing to accept any mutually agreed arrangement that would further decrease Greece\’s debt."
Georgiades said Cyprus supported extending Greece\’s rescue program because it would be "catastrophic" for a country to stay locked out of international markets without having such a program in place.
He said any Greek rescue program should be reform-oriented instead of raising taxes.
How much Greece owes to international creditors
Greece, which may default on an International Monetary Fund debt repayment due on Tuesday after talks with creditors broke down, owes its official lenders 242.8 billion euros ($271 billion), according to a Reuters calculation based on official data, with Germany by far the largest creditor.
That figure includes loans made under two bailouts from European governments and the IMF since 2010 — worth a nominal 220 billion euros so far, of which some has been repaid — as well as Greek government bonds held by the European Central Bank and national central banks in the euro zone.
Private investors hold 38.7 billion euros of Greek government bonds following a major write-down and debt swap in 2012 that reduced the Greek debt stock by 107 billion euros and the value of private holdings by an estimated 75 percent.
The Greek government has also issued 15 billion euros in short-term Treasury bills, mostly to Greek banks.
Here is a breakdown of the country\’s foreign debt stock:
IMF – Greece was promised a total of 48.1 billion euros by the IMF, of which 16.3 billion was still to come by March 2016 if Athens successfully completed the second economic adjustment program. It had serviced and repaid loans on time up to this month, when it used an obscure IMF provision to bundle together four payments totaling 1.6 billion euros for payment by the end of June. The older IMF loans carry an interest rate of 3.5 percent, higher than the euro zone rescue fund charges.
ECB – The ECB owns roughly 18 billion euros of Greek bonds, which would probably be worth a fraction of their face value should the country leave the euro zone, with 6.7 billion euros maturing in July and August.
Beyond a default on Greece\’s national debt, any exit of Greece from the euro zone would lumber the European Central Bank with a huge bill for lost credit. ECB President Mario Draghi recently said that Greek banks had tapped 118 billion euros of central bank liquidity. That includes 89 billion in what is known as Emergency Liquidity Assistance (ELA). That remains the responsibility of the country\’s central bank but only if Greece stays in the euro. Were it to leave, the bill would rebound on other euro countries, including Germany.
In addition about 45 billion euros of banknotes in Greece represents another liability, being a claim that the wider Eurosystem of central banks would be obliged to honor.
THE EURO ZONE – Euro zone governments gave Greece 52.9 billion euros in bilateral loans under the first bailout agreed in 2010, known as the Greek Loan Facility. Under the second bailout agreed in 2012 Athens has so far received 141.8 billion euros from the euro zone\’s financial rescue fund. It had been due a further 1.8 billion euros by June 30 if it met conditions but barring major surprises that is off the table.
Of the biggest euro zone members, Germany\’s exposure for the two bailouts totals 57.23 billion euros, France\’s is 42.98 billion, Italy\’s is 37.76 billion and Spain\’s 25.1 billion. That is in addition to their contributions to the IMF loans, commensurate with their respective quotas in the global lender.
Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.
Greece has asked for further debt relief from the Europeans, a move supported by the IMF. But euro zone governments have said they would only discuss that if Athens further tightens its budget.
SOURCE: AP, AFP, REUTERS and agencies