Greece could be forced to lock down savers’ cash as debt crisis worsens
Athens
could impose capital controls, limiting the amount that savers can withdraw
from their accounts and curbing transfers of money overseas
Greece’s central
bank has issued the clearest warning yet that the country is on course to
default on its sovereign debt at the end of the month and crash out of the
single currency, while finance ministers across Europe also confirmed they are
making contingency plans for a messy ending to the crisis.
Athens is due to
repay €1.6bn to the International Monetary Fund on 30 June but will be unable
to do so unless its creditors release a €7.2bn bailout payment before then.
Talks between
Greece and its eurozone and IMF creditors over a “cash-for-reforms” deal have
stalled, with the country’s Prime Minister, Alexis Tsipras, accusing the
creditors of “pillaging” the country over the past five years.
“Failure to
reach an agreement would …mark the beginning of a painful course that would
lead initially to a Greek default and ultimately to the country’s exit from the
euro area and, most likely, from the European Union,” the Bank of Greece said
in a statement.
“Striking an
agreement with our partners is a historical imperative that we cannot afford to
ignore,” it added.
The central bank
said some €30bn in deposits have fled the Greek financial system since last
October as Greek savers shift their money ahead of a possible exit from the
euro.
The German
Finance Minister, Wolfgang Schäuble, told a parliamentary hearing in Berlin
that his government is making contingency plans in the event of Grexit.
“We are prepared
for all eventualities” said the Dutch Finance Minister, Jeroen Dijsselbloem, in
the Hague. The Chancellor, George Osborne, also confirmed that the UK has
stepped up planning to deal with the economic fallout.
If Greek
defaults, the European Central Bank could cut off its support to the Greek
financial system, forcing Athens to impose capital controls, limiting the
amount that savers can withdraw from their accounts and curbing transfers of
money overseas. When imposed in other countries, such controls have prompted
queues outside bank branches as people try to remove as much cash as possible,
and wider turmoil in financial markets as foreign investors realise they cannot
pull their money out.
It would be a
short step from there to Greece imposing its own parallel currency and becoming
the first country to exit the eurozone since it was established in 1999.
However, an EU
official said that non-payment to the IMF on 30 June by Greece might not be
deemed a technical default, suggesting creditors might be preparing to create
more time for the two sides to reach a deal.
In a sign of how
relations have collapsed, the President of the European Commission, Jean-Claude
Juncker, accused Athens of effectively lying to its own people about reforms
being pushed by Brussels. “I am blaming the Greeks [for telling] things to the
Greek public which are not consistent with what I’ve told the Greek Prime
Minister,” he said.
However, The
Austrian Chancellor, Werner Faymann, struck a more conciliatory tone in Athens.
“For Europe to be stronger, it must show solidarity and support to any country
which needs it” he said during a meeting with the Greek President Prokopis
Pavlopoulos. For his part, Mr Tsipras said he was prepared to say “the great
no” if that was what was necessary to prevent the continuation of their
“catastrophic” austerity policies he Eurogroup of finance ministers is set to
meet in Luxembourg in what had previously been billed as Greece’s last chance
to secure a deal. Now officials are reported to be preparing for an emergency
summit of eurozone heads on 21 June.
The Bank of
Greece spelled out how economically disastrous it would be domestically if the
country left the euro. “All this would imply deep recession, a dramatic decline
in income levels, an exponential rise in unemployment and a collapse of all
that the Greek economy has achieved over the years of its EU, and especially
its euro area, membership,” it said.
“From its
position as a core member of Europe, Greece would see itself relegated to the
rank of a poor country in the European South.”.
