World Economy

Greece Races to Avert Black Monday

Greece Races to Avert Black MondayGreece Races to Avert Black Monday

Greek bank executives and European officials warned of an imminent cash crunch or bank shutdown after the collapse of bailout talks stoked concern Greece may be forced to exit the euro.

Greek Finance Minister Yanis Varoufakis said he is opposed to the “very concept” of capital controls, though he said the stability of the banking system was a “matter we will have to work overnight on.”

European Central Bank policy makers, who have kept the nation’s financial system afloat as withdrawals mounted at a record pace, decided during a Sunday conference call to maintain the lifeline without increasing it. The country owes $1.7 billion to the International Monetary Fund in two days, Bloomberg reported.

Greek Prime Minister Alexis Tsipras upended five years of crisis-fighting at about midnight Friday, rejecting the creditors’ conditions for aid and instead calling a July 5 referendum on the proposals. Euro-area finance chiefs rejected his request to extend Greece’s aid program beyond June 30. The deposit flight that has depleted the country’s coffers since late 2014 accelerated after the latest twist in the financial crisis that began in late 2009. Greek bank deposits shrank by €30 billion between January and May this year to €129.9 billion, according to Bank of Greece.

The ECB’s power over Greece lies in the emergency aid it has fed to keep the nation’s banks alive through five months of failed political talks on unlocking bailout funds.

Should it halt that, Greece may have to consider capital controls or a bank holiday to protect its economy. Analysts have said such a move could potentially put the country on a path to exiting the single currency. European Council President Donald Tusk said on Sunday that Greece must remain part of the euro single currency area, adding that he was in touch with government leaders to prevent Athens dropping out of the monetary union.

“Greece is and should remain euro area member,” he tweeted after euro zone finance ministers refused to extend bailout loans ahead of a looming Greek debt default on Tuesday.