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4th Jul 2022

Dijsselbloem: Greece might need capital controls

  • Greece could be forced to copy Cypriot-style capital controls to prevent bank runs, according to Dijsselbloem (r) (Photo: consilium.europa.eu)

Greece could be forced to resort to Cypriot-style capital controls in a bid to prevent depositors taking their money out of the country, the chairman of the Eurogroup has warned.

Speaking on Tuesday (17 March), Jeroen Dijsselbloem told Dutch broadcaster RTL Nieuws that “the pressure on Greece is growing," adding that “the amount of cash, money – at least this is what I’m told – is declining by the day".

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However, he added, EU politicians have thought through “various scenarios” that "don’t at all have to immediately be exit scenarios".

He pointed to Cyprus, which remained in the eurozone despite becoming the first member of the single currency to impose capital controls.

"The banks were closed a while, and capital controls - cash flows in the country and out of the country - were tied to all manner of conditions," he said.

Cyprus was forced to introduce capital controls in March 2013 in a bid to limit a run on its banks as a €10 billion bailout programme was messily agreed with the EU. Initially, the government set restrictions on bank money transfers and withdrawals, including a daily cash withdrawal limit of €300. Many of the restrictions are still in place.

Iceland also has capital controls in place, nearly seven years after it imposed them during its banking crisis in 2008.

Dijsselbloem, who is also the Dutch finance minister, made his remarks on the eve of local elections in the Netherlands.

The Greek government reacted angrily, with spokesman Gabriel Sakellaridis stating that “it would be useful for everyone for Mr Dijsselbloem to respect his institutional role in the Eurozone.”

"We don’t easily understand the reasons which motivate him to make statements which do not fit with the role with which he has been trusted. Everything else is fantasy. We believe it is unnecessary to remind him that Greece cannot be blackmailed.”

But Dijsselbloem’s remarks will do little to halt the flow of bank deposits out of Greek lenders.

Savers removed €12 billion from Greek bank accounts in January - figures which were likely replicated in February - dropping bank deposits to their lowest level since 2005, on the back of fears that Alexis Tsipras’ Syriza government will be unable to re-negotiate the terms of Greece’s bailout.

Greek banks are now increasingly dependent on emergency funding from the European Central Bank after the Frankfurt-based bank withdrew a waiver that allowed Greek banks to access its cheap loans using government bonds and government-guaranteed assets as collateral.

In total, the ECB is currently providing around €80 billion in support for Greek banks.

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