The sands of time and liquidity are rapidly running out for the Greek banking system with the banks having faced record deposit withdrawals on Sunday as people queued to remove their funds.
Gavin Hewitt of the BBC reported that only 40% of ATM’s had money which caused further fuelling of panic among Greek citizens.
Speaking shortly after the European Central Bank (ECB) announced that it would not be increasing emergency funding to Greek Banks, Prime Minister Alexis Tsipras assured the depositors that their funds were safe. This was insufficient to prevent a run on the banks while the Bank of Greece said it was making “huge efforts” to keep ATM’s stocked. The ECB decision not to increase emergency funding means that there would be insufficient funds to cope with deposit and withdrawal demands and it also increased the probability of Capital controls.
Mr. Tsipras made a televised address on Sunday in which he said, “[Rejection] of the Greek government’s request for a short extension of the program [to allow for the referendum planned for 5 July] was an unprecedented act by European standards, questioning the right of a sovereign people to decide”. He continued to state that the Greek Central Bank had suggested a bank holiday and Capital controls.
A later announcement advised that banks would be closed on Monday and would probably stay closed until after the referendum.
The imposition of Capital controls was also announced. According to a BBC report, the controls limit withdrawals to a daily maximum of 60 euros from an account. Overseas transfer of funds is also prohibited with the exception of essential pre-approved commercial transactions.
The Greek stock market would also remain closed on Monday.
According to MarketWatch, Richard Perry, market analyst at Hantec Markets, said, “It looks not great. I have to say I am surprised as to how it is panning out at the moment. Capping the Emergency Lending Aid (ELA) is a fairly significant move as the ECB knows Greek banks are already all but insolvent. They are relying upon the liquidity of the ECB and the lack of extension could well be crippling. This is the ECB really cranking up the pressure on Greece.”
Asian markets opened lower in early Monday trading with the Nikkei 225 Index down 1.81% while the Australian benchmark S&P/ASX 200 was also lower, down by 1.85% in the first market reaction to the Greek decision to impose the Capital controls.
The decision to hold a referendum on July 5 was a last desperate attempt by the Greek government to buy another week before crisis day loomed. This was also in the hope that the threat of a “No” vote for increased austerity would influence the ECB and the Eurozone ministers. Prime Minister Tsipras’ Syriza party has already announced that it will vote “No” to the referendum.
The bailout package expires on Tuesday night while the repayment of $1.5 billion to the IMF (International Monetary Fund) is also due Tuesday.
The whole scenario will play out during the next 48 hours, during which the result of the inflexibility of the Syriza led Greek government, which has steadfastly maintained the position on which it was elected, starts to take effect. The European position that austerity measures have to go hand in hand with bailout funds is diametrically opposed to the sentiment prevalent amongst the Greek public who might just heed this last wake-up call.