Monday, 29 June 2015

Capital Controls in Greece

After a weekend of panicked withdrawals that caused cash machines across the country to run dry, the Bank of Greece has decided to impose capital controls beginning on Monday.

Prime Minister Alexis Tsipras blamed the decision on the fact that Greece’s creditors refused to extend its financial assistance arrangement by a month, after the two sides failed to reach an agreement on spending cuts and tax increases. The programme ends on Tuesday.

Supporters of Greece's 'No' vote occupied Syntagma Square in front of parliament ahead of a referendum, saying "No to unemployment, no to poverty, no to the euro."

“This decision led the European Central Bank today not to increase the liquidity of Greek banks, and forced the Bank of Greece to recommend a bank holiday and a limit on withdrawals,” Tsipras said in a Sunday evening address to the nation.

There were unconfirmed reports that banks might remain closed for six business days, until Monday July 6. Senior banking sources believe this is on the understanding that limited transactions via ATM, web banking and credit card would gradually be phased in.

The panic that seemed to be setting in across Greece followed Tsipras’ announcement in the small hours of Saturday, that his government would seek a referendum on the austerity package creditors propose, bypassing parliamentary procedure. That referendum is expected to take place on Sunday July 5. 

Inscrutably, the Greek government did not make public that proposal, even after it submitted it to parliament as a public document on Saturday. When the European Commission did so on Sunday, the government responded by issuing a point-by-point rebuttal of all that it finds objectionable, hoping to bolster its advice to the Greek people to vote against the measures. 

The ruling Syriza party has promised not to pass more austerity measures through parliament since it was elected in January. "We don't have the right to turn back and confound the hopes of those who votes for us, hoping that we will steer this country away from the status of a debt colony," Tsipras said. 

Creditors took offence at what they described as Greece's unilateral departure from week-long talks on Saturday. Jeroen Dijsselbloem, the chairman of the single currency bloc’s forum of finance ministers, said Greece was to face its creditors alone on Tuesday, when it must repay a 1.6bn euro bond to the International Monetary Fund.

As Greece’s programme will end that day, Dijsselbloem suggested that even a yes vote in the ensuing referendum would be pointless.

The rhetoric ramped up over the weekend, with Tsipras calling the ECB decision an attempt to “blackmail the will of the Greek people and subvert the smooth execution of the referendum.”

Following the Saturday panic, however, creditors dialled back the rhetoric of severance. On Saturday night, the European Commission affirmed that Greece remained a member of the Eurozone. On Sunday, IMF managing director Christine Lagarde said the IMF would “continue to carefully monitor developments in Greece… and stands ready to provide assistance as needed.” It added that it would continue to come to an agreement with the Greek government on a continued financial oversight programme.

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