The ECB declined to grant extra cash to help Greece\’s stricken banking system on Sunday as the government weighed up drastic new measures to contain a growing financial crisis.
As the Greek crisis intensified after talks between Athens and its creditors broke down Saturday, Greek citizens have queued at bank machines, heaping pressure on the government to impose capital controls.
Finance Minister Yanis Varoufakis and the central bank chief were set to meet Sunday for an emergency meeting of the "systemic stability council", amid increasing signs of a bank run.
Since Friday night alone, 1.3 billion euros ($1.45 billion) have been withdrawn from Greek banks, said the head of the bank workers\’ union Stavros Koukos.
A banking source in Greece that requested anonymity said only 40 percent of cash machines now had money in them.
The German foreign ministry recommended that its citizens travelling to Greece "take sufficient amounts of cash" with them.
Varoufakis, pressed in a BBC interview on whether Athens would limit bank withdrawals and overseas transfers , said only that "this is a matter that we\’ll have to work overnight on with the appropriate authorities both here in Greece and in Frankfurt".
Bank of Greece chief Yannis Stournaras said his bank "will take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances".
The Frankfurt-based ECB\’s governing council earlier held an emergency telephone conference and pledged to maintain emergency liquidity assistance — keeping open its life-support for Greek banks and, by extension, the Greek state.
However, it pledged no fresh cash for banks, ratcheting up pressure on the Greek government to slap on controls to save lenders from the run on deposits.
Greece, after five years of turmoil, appeared to head into the uncharted, and likely turbulent, waters of a long dreaded "Plan B".
The long festering crisis took a sharp turn for the worse when leftist Greek Prime Minister Alexis Tsipras stunned Europe with a surprise call for a July 5 referendum on the latest cash-for-reforms package and advised voters against backing a deal that spells further "humiliation".
For Tsipras, austerity has been a "humanitarian catastrophe" for his country of about 11 million people, which has endured five years of recession, turmoil and skyrocketing unemployment.
Exasperated eurozone members, suspecting a further play for time, responded by refusing to extend the EU\’s critical financial lifeline beyond a Tuesday deadline.
This will almost certainly mean Greece will default on more than 1.5 billion euros ($1.7 billion) due to the International Monetary Fund on Tuesday.
Missing the payments does "not spell immediate formal default or even Grexit. But it would put Greece on the slippery slope towards Grexit," wrote Holger Schmieding, chief economist of Berenberg Bank.
French Prime Minister Manuel Valls warned of a "real risk" of Greece leaving the eurozone if it citizens vote against the EU\’s bailout proposals in a referendum planned for next weekend.
A Grexit, Schmieding wrote, "could be a social catastrophe well beyond anything" the country has endured so far through the debt crisis.
"Simply printing more IOUs and later on drachma to top up wages, pensions and welfare benefits would just cause a further collapse of the new currency and thus a bigger surge in import prices and overall inflation."
Varoufakis said it was "a dark hour for Europe" but blamed Greece\’s international creditors for failing to compromise.
"We know that we have bent over backwards to accomodate the institutions, the troika, our European partners. They have not come to the party, they have not met us half way, not even a quarter of the way."
Speaking to German media, he said Merkel — long Europe\’s champion of tough reforms in exchange for bailout cash — "holds the key" to resolving his country\’s crisis, while stressing Athens remains open to further talks with international creditors.
"The EU leaders must act. And among them she, as the representative of the most important country, holds the key in her hand. I hope she uses it," he told Bild newspaper.
The focus now will be on quarantining Greece and containing the fallout for the other 18 members from "contagion" on markets.
The ECB said it was "closely monitoring the situation in financial markets and the potential implications for the monetary policy stance".
The ECB — which has maintained ultra-low interest rates and launched large-scale quantitative easing measures — said it "is determined to use all the instruments available within its mandate" to maintain price stability.
OECD chief economist Catherine Mann told Italy\’s La Stampa newspaper that "if you ask me if (markets) are ready for what is happening in Greece, I reply that no, their forecasts don\’t predict any risk. The markets are not prepared."