Greek Crisis Deepens As Govt Introduces Capital Controls; Banks, Athens Exchange Said To Be Closed For The Week

The crisis in Greece is deepening as the government announced that it will roll out capital controls in addition to closing its banks and the Athens Stock Exchange on Monday after creditors refused to extend the country’s bailout and savers flock to ATM’s to withdraw cash, Reuters reports.

Athens’ standoff with the European Union (EU) and the International Monetary Fund (IMF) heads to a dangerous and uncharted new level following a July 5 referendum that was called by Prime Minister Alexis Tsipras on whether to accept austerity in exchange for a European bailout.

The move comes just as the Greece enters its busy summer tourism season, which could be a final crushing blow to Greece as its entire economy will now grind to a halt.

Greek banks have been kept afloat by emergency funding from the European Central Bank (ECB) and are now on the brink as Athens moves towards defaulting on a 1.6 billion euros payment due to the IMF on Tuesday.

The ECB has frozen the level of emergency aid available to the Greek banking system, a move which will cripple the country’s financial system following a flood of ATM withdrawals.

Anthimos Thomopoulos, the CEO of Piraeus Bank, which is one of Greece’s top four banks, speaking after a meeting of the country’s financial stability council, said that banks would be shut on Monday.

Athen’s Kathemerini newspaper reports that Greek banks will remain closed until at least after a July 5 referendum, citing an unnamed source.

The Greek financial stability council has recommended keeping Greek banks closed for the next six working days, Reuters reports, citing a source with knowledge of the decision said on Sunday.

The Greek financial stability council has also recommended a daily cash withdrawal limit of 60 euros starting on Tuesday, according to Reuters.

Reuters reports that the Athens Stock Exchange would also be closed on Monday, citing a financial industry source.

Athen’s Kathemerini newspaper says that the Athens Stock Exchange will be closed for at least a week.

ATHEX: Stock market to close for at least a week http://t.co/JwVVjDwa6X

— Kathimerini English (@ekathimerini) June 28, 2015

On Saturday, German Finance Minister Wolfgang Schaeuble openly questioned the solvency of Greek banks:

“The ECB has always said that as long as Greek banks are solvent, then emergency loans, the ELA, can be granted,” he said on 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.”

“It is a dark hour for Europe….nevertheless from where we’re sitting we have a clear conscience,” Greek Finance Minister Yanis Varoufakis said earlier in an interview with the BBC.

Asked whether Greece would close banks and impose capital controls he said: “This is a matter that we’ll have to work overnight on with the appropriate authorities both here in Greece and (with the ECB) in Frankfurt.”

Earlier today the Finance Minister tweeted that the government opposed the ‘very concept’ of capital controls within a monetary union.

Capital controls within a monetary union are a contradiction in terms. The Greek government opposes the very concept.

— Yanis Varoufakis (@yanisvaroufakis) June 28, 2015

Later on Sunday night, speaking on live TV, Greek Prime Minister Alexis Tsipras said that the Greek central bank has been forced to recommend a bank holiday and the introduction of capital controls.

Tsipras blames the ECB, and other institutions, for trying to obstruct the democratic referendum that he has called for next Sunday. This is a “insult” that shames European democracy, he says.

Tsipras also appeals for calm, and he insists that bank deposits are secure.

Donald Tusk, the European Council President, said on Sunday that he is in contact with all the governments of the Eurozone to ensure that Greece remained in the single currency Several officials said there was still time to return to the negotiating table, Reuters reports.

“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.

French Prime Minister Manuel Valls on Sunday urged the Greeks to continue talks.

“I cannot resign myself to Greece leaving the euro zone … We must find a solution,” Valls told Europe 1, Le Monde and iTELE in a joint interview.

An editorial from The Financial Times (FT) on Sunday blasts Greek Prime Minister Alexis Tsipras, blaming him for the current debacle that is unfolding in Greece.

The paper argues that Tsipras hasn’t only overplayed his hand, but may now be misleading his people on what is exactly at stake in Greece’s July 5 referendum.

Here is more from the FT:

His tactic has already come unstuck because the eurozone has refused to consider extending their bailout offer to the date of the poll. By Sunday, when the referendum votes are due to be cast, there may be no deal on the table to discuss.

Nor has Mr Tsipras been candid about the meaning of the “resounding no” vote he is calling the electorate to deliver on a question that has yet even to be defined.

The prime minister says it would be “a big yes to not accepting ultimatums”. He has a moral and political responsibility to spell out the consequences of the course he is advocating. In the meantime the Greek people might be well advised to listen closely to the words of Ms Merkel. The plebiscite will be a vote for the euro or the drachma — no more, no less.

An editorial from The Guardian on Sunday night compares the Greece crisis to a “Sarajevo moment for the eurozone”.

Here’s more from The Guardian:

A hundred and one years ago on Sunday, gun shots rang out in a city in southern Europe. Few at the time paid much heed to the assassination of Archduke Franz Ferdinand and his wife as they drove through the streets of Sarajevo. Within six weeks, however, Europe was at war.

Make no mistake, the decision by Alexis Tsipras to hold a referendum on the bailout terms being demanded of his country has the potential to be a Sarajevo moment. The crisis is not just about whether there is soon to be a bank run in Greece, although there is certainly the threat of one. It is not just about whether the creditors overplayed their hand in the negotiations, although they did. It is about the future of the euro itself.

…

If Greece leaves, the idea that the euro is irrevocable is broken. Any government that runs into difficulties in the future will have the Greek option of devaluation as an alternative to endless austerity. Just as importantly, the financial markets will know that, and will pile pressure on countries that look vulnerable. That’s why Greece represents an existential crisis for the eurozone.

It will be said in response that Greece is a small, insignificant country and that the single currency has much better defences than it had at the last moment of acute trouble in the summer of 2012. Diplomats in Europe’s capitals took very much the same view in late June 1914.

Meanwhile, long lines formed outside many ATMs across Athens on Sunday, with some 40 to 50 anxious people in que to withdraw cash.

Banks in #Greece to stay closed on Monday = Sunday evening queue at the ATM … Some anxious faces pic.twitter.com/NNU1aPrem1

— jon henley (@jonhenley) June 28, 2015

Passengers arriving at Athens airport on Sunday night got an early taste of the situation in Greece:

Resending this as there is at least one other ATM with cash at athens airport out of shot. I’ve joined the line. pic.twitter.com/EuoIcj9afb

— Elliott Gotkine (@ElliottGotkine) June 28, 2015

The Bank of Greece said it was making “huge efforts” to ensure the machines remained stocked.

The German Foreign Ministry warned tourists that are heading to Greece to take plenty of cash to avoid possible problems with local banks.

As the news from Greece echos around the world, global financial markets are bracing for heavy losses and a wave of contagion on Monday.  Here’s more from Reuters:

Global financial markets are braced for a wave of contagion from Greece on Monday, with expected heavy losses for southern European government bonds and regional stock markets as investors scramble to discount a possible “Grexit” that most had still assumed was unlikely as late as Friday afternoon.

…

“That is going to have a real big impact on markets and that will generate increased volatility,” said Ian Stannard, European head of FX strategy at Morgan Stanley in London.

…

“There is a risk that peripheral government bond spreads surge to stress levels,” wrote ABN Amro analysts in a research paper. “The ECB needs to be ready to activate its OMT (outright monetary transactions) program to restore calm if necessary.”

…

“We are in uncharted territory and European equities, like all markets, will have a difficult time processing this,” said Deutsche Bank Managing Director Nick Lawson.

“The market was not positioned for this going into the weekend and the lack of liquidity that has impacted both sovereign and corporate debt markets, as well as equity recently, will exacerbate things.

The Euro plunged on Sunday night at the start of trading in Asia for Monday Morning, with the single currency immediately falling 1.5 percent to $1.101, down from $1.116 on Friday evening.

Euro vs dollar on Sunday night (28JUN2015) following developments in Greece.

The U.S.-traded Greece ETF, the Global X FTSE Greece 20 Exchange Traded Fund, fell over 5 percent on Sunday night at the start of trading in Asia for Monday Morning, U.S. market futures opened down over 1.50%.

Ed Conway, Economics Editor of Sky News, sums up the situation in Greece:

Banks shut, capital controls, limits on withdrawals, shut stock markets. And all this after the worst depression on record. Awful. #Greece

— Ed Conway (@EdConwaySky) June 28, 2015