International

Greece to use capital controls, close banks

People line up to withdraw cash from an automated teller machine (ATM) outside a National Bank branch in Iraklio on the island of Crete, Greece June 28, 2015. REUTERS/Stefanos Rapanis

ATHENS / FRANKFURT: Greece will introduce capital controls and keep its banks closed Monday after creditors refused to extend the country’s bailout and savers queued to withdraw cash, taking Athens’ standoff to a dangerous new level.

The Athens stock exchange will also be closed as the government tries to manage the financial fallout of the disagreement with the EU and the International Monetary Fund.

Greece’s banks, kept afloat by emergency funding from the European Central Bank, are on the front line as Athens moves toward defaulting on a 1.6 billion euros payment due to the International Monetary Fund Tuesday.

Greece blamed the ECB, which made it difficult for the banks to open because it froze the level of funding support rather than increasing it to cover a rise in withdrawals from worried depositors, for the moves.

Prime Minister Alexis Tsipras said the decision to reject Greece’s request for a short extension of the bailout program was “an unprecedented act” that called into question the ability of a country to decide an issue affecting its sovereign rights.

“This decision led the ECB today to limit the liquidity of Greek banks and forced the central bank of Greece to propose a bank holiday and a restriction on bank withdrawals,” he said in a televised address.

Amid drama in Greece, where a clear majority of people want to remain inside the euro, the next few days present a major challenge to the integrity of the 16-year-old eurozone currency bloc.

Greece’s left-wing Syriza government had for months been negotiating a deal to release funding in time for its IMF payment. Then suddenly, in the early hours of Saturday, Tspiras asked for extra time to enable Greeks to vote in a referendum on the terms of the deal.

Creditors turned down this request, leaving little option for Greece but to default, piling further pressure on the country’s banking system. The creditors want Greece to cut pensions and raise taxes in ways that Tsipras has long argued would deepen one of the worst economic crises of modern times in a country where a quarter of the workforce is already unemployed.

Pro-European Greek opposition parties have united in condemning the decision to call the referendum on the bailout terms, but many people are supportive. “I want him [Tsipras] to knock his fist on the table and to say ‘enough!’” Athens resident Evgenoula said.

Long lines formed outside many ATMs Sunday, including some of 40 to 50 people outside some in central Athens. The Bank of Greece said it was making “huge efforts” to ensure the machines remained stocked.

The ECB has kept the banks afloat in recent days with increases in its funding line, a form of overdraft with the eurozone’s central bank system.

But Sunday it said it would hold the funding line at the same level as Friday, despite the deposit outflows. The central bank said it was monitoring the situation and stood ready “to reconsider its decision.”

There is growing opposition to the funding line because it would fall to the bloc’s other members to pay if Greece were to leave the eurozone.

German Finance Minister Wolfgang Schaeuble openly questioned the solvency of Greek banks – a key condition to qualify to receive such finance. “The ECB has always said that as long as Greek banks are solvent, then emergency loans, the ELA, can be granted,” he said Saturday. “And now there is naturally a new situation that because of the developments the liquidity and solvency of Greek banks, or some Greek banks, could be in doubt.”German Chancellor Angela Merkel has invited leaders of all the major German parties to a meeting in Berlin Monday to discuss the crisis.

The 18 other countries sharing the euro have blamed Greece for breaking off negotiations and pledged to do whatever it takes to stabilize the common currency area. Several officials said there was still time to return to the negotiating table. “To those who wonder what’s next, 1. Greece should stay in euro; 2.The door is still open for negotiations on latest EU Commission proposals,” EU Economics Commissioner Pierre Moscovici said.

 
A version of this article appeared in the print edition of The Daily Star on June 29, 2015, on page 1.

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