Greek banks to stay shut all week

Posted by Warren Fyfe on June 29, 2015 in Warren Fyfe Site

The Greek government has confirmed that banks will be closed all week, after a decision by the European Central Bank not to extend emergency funding.

In a decree, it cited the “extremely urgent” need to protect the financial system due to the lack of liquidity.

Cash withdrawals will be limited to €60 (£42; $66) a day for this period, the decree says.

Athens is due to make a €1.6bn payment to the IMF on Tuesday – the same day that its current bailout expires.

In reaction to the crisis, the London, Paris and Frankfurt stock markets fell sharply in early trading on Monday, following similar falls in Asia.

The euro lost 2% of its value against the the US dollar. Government borrowing costs in Italy and Spain, two of the eurozone’s weaker economies, have also risen.

Greece crisis – live coverage

Talks between Greece and the eurozone countries over bailout terms ended without an agreement on Saturday, and Prime Minister Alexis Tsipras then called a surprise referendum on the issue to be held on 5 July.

Greece risks default and moving closer to a possible exit from the 19-member eurozone.

‘Not viable’

The decree was published in the official government gazette after the Greek cabinet took the decision late on Sunday.

The document said the measures – including the shutting down of the Athens stock exchange on Monday – were agreed as a result of the eurozone’s decision “to refuse the extension of the loan agreement with Greece”.

The €60 restriction on withdrawals will not apply to holders of foreign bank cards.

Mr Tsipras also said that Greek deposits were safe.

Greeks have been queuing to withdraw money from cash machines over the weekend, leaving a number of ATMs dry.

However, the decree said that the cash machines would “operate normally again by Monday noon at the latest”.

Days of turmoil

  • Friday evening: Greek prime minister calls referendum on terms of new bailout deal, asks for extension of existing bailout
  • Saturday afternoon: eurozone finance ministers refuse to extend existing bailout beyond Tuesday
  • Saturday evening: Greek parliament backs referendum for 5 July
  • Sunday afternoon: ECB says it is not increasing emergency assistance to Greece
  • Sunday evening: Greek government says banks to be closed for the week and cash withdrawals restricted to €60

Eurozone finance ministers blamed Greece for breaking off the talks, and the European Commission took the unusual step on Sunday of publishing proposals by European creditors that it said were on the table at the time.

But Greece described creditors’ terms as “not viable”, and asked for an extension of its current deal until after the vote was completed.

“[Rejection] of the Greek government’s request for a short extension of the programme was an unprecedented act by European standards, questioning the right of a sovereign people to decide,” Mr Tsipras on Sunday said in a televised address.

He also said he had sent a new request for an extension to the bailout. “I am awaiting their immediate response to a fundamental request of democracy,” he added.

Analysis: Robert Peston, BBC economics editor

The temporary closure of banks in Greece, and the introduction of capital controls, is very bad news for Greece. Greek people will have less money to spend and business less to invest; so an already weak economy will probably return to deep recession.

As for the impact on the rest of the eurozone, corporate treasurers and wealthy individuals will wake up on Monday wondering if their money is safe in the banks of other weaker eurozone economies.

Greece’s bank holiday from hell

The current ceiling for the ECB’s emergency funding – Emergency Liquidity Assistance (ELA) – is €89bn (£63bn). It is thought that virtually all that money has been disbursed.

The ECB was prepared to risk restricting ELA because the failure of the bailout talks cast new doubt on the viability of Greek banks – some of their assets depend on the government being able to meet its financial commitments, the BBC economics correspondent Andrew Walker reports.

He adds that it is a fundamental principle of central banking that while you do lend to banks that are in temporary difficulty, you do so only if they are solvent.

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Article source: http://www.bbc.co.uk/news/world-europe-33307263#sa-ns_mchannel=rss&ns_source=PublicRSS20-sa

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