World Economy

Greece Imposes Capital Controls

Greece Imposes Capital ControlsGreece Imposes Capital Controls

Greece shut its banks and imposed capital controls in a dead-of-night announcement designed to avert the collapse of its financial system as the country edges closer to an exit from the euro.

The measures, which were announced just before 3 a.m. in Athens, limit daily cash withdrawals to 60 euros ($66) and ban payments and transfers abroad, according to the decree. Banks will be closed at least until July 6.

The move followed a weekend of turmoil that started with Prime Minister Alexis Tsipras’s shock announcement late Friday of a July 5 referendum on austerity measures demanded by the country’s creditors, sending people rushing to line up at ATMs and gas stations. The risk of potential contagion if Greece leaves the euro spurred a 1.5% fall in the euro on Monday and sparked declines in Asian stocks.

The banks control follow the breakdown of aid talks with international creditors late Friday and a European Central Bank decision to freeze its lifeline to Greek banks. Greece is the second eurozone country, after Cyprus in 2013, to impose capital controls.

Patience, Composure

“In the coming days, what’s needed is patience and composure,” Tsipras said in a televised statement. “The bank deposits of the Greek people are fully secure. The same applies to the payment of wages and pensions–they are also guaranteed.”

German Chancellor Angela Merkel spoke to President Barack Obama on Sunday, agreeing on the importance of keeping Greece in the euro.

The weekend developments marked an abrupt turn from last week, when markets rallied on hopes a deal between Tsipras’s anti-austerity government and creditors–the ECB, European Commission and International Monetary Fund–was at hand.

The optimism vanished after midnight on Friday with Tsipras’s call for the referendum just days before the June 30 expiry of the current bailout and a $1.7 billion payment due to the IMF. Greece also faces repayment of €3.5 billion (3.89 billion) of bonds held by the European Central Bank that mature July 20.

The ECB on Sunday froze the ceiling on Emergency Liquidity Assistance to Greek lenders at just below €89 billion, refusing for the first time this year to maintain a buffer as deposits sank.

Referendum Confusion

Adding to the confusion is uncertainty over the contents of the referendum as there was no defined aid proposal. The European Commission on Sunday published a 10-point summary of what they said was the state-of-play when talks collapsed.

The list was published “in the interest of transparency and for the information of the Greek people” before the vote and included increases in value-added taxes, cuts in pension spending and primary-surplus targets through 2018.

In the aftermath of the Brussels talks, Greeks lined up to get access to as much of their money as they could from ATMs. Skai television reported as much as €1 billion was withdrawn.

Blackmail, Injustice

Tsipras moved to bolster confidence and focus blame on Greece’s creditors, who have demanded continued austerity after extending €240 billion in bailout commitments since 2010.

“The dignity of the Greek people in the face of blackmail and injustice will send a message of hope and pride to all of Europe,” he said in the televised statement, maintaining the confrontational tone that has characterized his six-month old government.

While Tsipras and his government urged a “no” vote in the referendum, he repeated his request to the European Commission to extend the bailout at least until the ballot.

“A very dark day for Greece,” Nicholas Economides, a professor at New York University’s Stern School of Business, said by phone. “The Greek economy, already at standstill, will go to deep freeze.”