Tuesday

13th Apr 2021

All eyes on ECB amid fear of bank run in Greece

  • The ECB will discuss Greece on Sunday (Photo: Valentina Pop)

Eurozone finance ministers on Saturday (27 June) all-but said they expect capital controls to be put in place in Greece, as the country enters a hugely uncertain period.

With the Greek bailout coming to an end on Tuesday, they noted that "without immediate prospects of a follow-up arrangement”, the Greek authorities will have to take measures "to safeguard the stability of the Greek financial system".

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They added that the 'institutions' - referring to the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF) - would provide "technical assistance".

Saturday’s discussion took place without Greek finance minister Yanis Varoufakis, who left the meeting, his peers said, of "his own account", after they refused to extend the bailout for a month in order to accommodate a surprise referendum next Sunday.

The referendum is to ask Greek people if they accept the strings attached to the remaining €7.2 billion of bailout money.

The situation puts both the eurozone and Greece into what one minister called “uncharted territory”.

The most pressing issue is whether there will be a fully fledged bank run in Greece.

Austrian finance minister Joerg Schelling said ministers discussed "that the Greek central bank will have to decide whether to introduce capital controls”.

Slovakia’s Peter Kazimir noted that it’s not necessary to wait until Monday to see if there’ll be a bank run, because there are already reports of long queues at ATMs in Athens.

Irish finance minister Michael Noonan said the ATM queues show there’s “anxiety” in Greece. “The crisis has commenced" he said, suggesting that Monday "could be a bank holiday".

Another pressing issue is whether Greece will pay a €1.6bn bill to the IMF, which is also due Tuesday.

Asked if Athens would pay, German finance minister Wolfgang Schaeuble said the only person who, "maybe”, knows the answer is Varoufakis.

Meanwhile, Luxembourg finance minister Pierre Gramegna said that a default does not necessarily mean Greece will exit the eurozone, with no formal provisions in the EU treaties for how a country leaves the currency club.

All eyes are now on the ECB, whose emergency liquidity assistance (ELA) programme has been providing financial life-support to Greek banks. The ECB will discuss Greece on Sunday. A decision to turn off the tap would plunge Greek lenders into crisis.

Maltese finance minister Edward Scicluna pointed out that the ECB has "unfettered freedom" to use OTM (an as-yet-unused promise to buy government bonds) and quantitive easing.

"We are prepared for this eventuality”, he said.

Talking up euro defences

Finance ministers were also at pains to stress the eurozone is much stronger than at the beginning of the crisis and since the last time there was real fear about a so-called 'Grexit'.

Their joint statement says euro states have "implemented ambitious structural reforms, improved fiscal and economic governance, deepened financial integration, and established efficient firewalls".

"The future for the eurozone is bright … it’s strong enough to sustain shock like this," said Lithuania's Rimantas Sadzius. Finland's Alex Stubb said he did "not see a risk of contamination".

Ministers were highly critical of the way Greek PM Alexis Tsipras on Friday took the decision to hold a referendum, noting that talks in Brussels were still ongoing when he pulled the plug.

One EU official said Greek officials negotiating the bailout terms in the commission building in the EU capital found out about the referendum via twitter.

Ministers also said the Greek government had made it impossible for them to extend the bailout because it said it would campaign for people to vote No to the creditors' proposals.

"It might have been easier", if the Greek government had recommended a Yes vote, said Eurogroup chief Jeroen Dijsselbloem.

Dijsselbloem kept open the possibility of resuming negotiations, saying the "door is still open”.

He also indicated that the Greek parliament, which is debating the referendum issue on Saturday evening, should take a "wise decision" which may lead to a "different political" course.

The French finance minister, Michel Sapin, also said France is willing to hold further talks.

He added, however: "One thing is clear. The Greek government cannot come back with a No and say: ‘Now we restart the negotiations'. It doesn’t work like that”.

Greece meeting kicks off with EU in 'uncharted waters'

A Eurozone meeting on Greece Saturday kicked off with a sense of disarray as euro finance ministers expressed surprise by Athens' referendum decision, and admitted they were unsure what was going to happen next.

Tsipras calls shock referendum

Greece will hold a referendum next Sunday on whether to accept its latest bailout offer, prime minister Alexis Tsipras has stated.

Tsipras announces capital controls

Greece is to become the second eurozone country to impose capital controls on Monday, in a bid to prevent the collapse of the country’s financial system.

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