Tuesday

9th Aug 2022

Tsipras announces capital controls

  • Athens: Greek banks are on the verge of running out of money as capital flight continues (Photo: and641)

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.

The decision was taken at a meeting of Greece’s financial stability council on Sunday (28 June), another tumultuous day for the eurozone.

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Prime minister Alexis Tsipras addressed the Greek people following an emergency meeting of his cabinet on Sunday evening to announce that the Bank of Greece was obliged to introduce capital controls.

In a short speech, he said it is "shameful" that the eurogroup had refused on Saturday to extend the country's current bailout beyond Tuesday and that he had sent a new extension request.

He appealed for calm from the Greek people and assured them their salaries and pensions would be paid.

The Greek banking sector and stock market will also remain closed on Monday, while speculation mounted they could stay closed all week ahead of a referendum next Sunday which could decide the country’s fate as a member of the eurozone.

Until Sunday evening, the Syriza government was insisting that it would not impose capital controls, with finance minister Yanis Varoufakis tweeting that “capital controls within a monetary union are a contradiction in terms. The Greek government opposes the very concept”.

But the move became inevitable after the European Central Bank’s (ECB) governing council decided to maintain but not increase the ceiling on the provision of emergency liquidity assistance (ELA) to Greek banks.

With around €4 billion leaving Greek banks in the past week alone, the ELA has effectively been providing financial life-support to its banking sector.

The ECB has been agreeing to requests from Greece for extra emergency liquidity on a weekly basis since January, gradually raising the ceiling on ELA from under €60 billion in February to €89 billion this Wednesday.

But its decision to freeze the ceiling was widely expected after negotiations between Greece and its creditors broke up acrimoniously on Saturday, in the wake of plans by Tsipras to hold a referendum next Sunday on the bailout terms.

In a statement, the ECB said it stands ready to "reconsider its decision" if circumstances change, adding that it would “work closely with the Bank of Greece to maintain financial stability”.

For his part, Yannis Stournaras, Governor of the Bank of Greece, left the question of capital controls open, commenting that his bank would “take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances”.

Meanwhile, savers rushed to withdraw their money over the weekend, fearing that Greece could soon be forced to leave the eurozone. Greek media reported long queues outside ATM’s.

Elsewhere, Belgium, the UK and the Netherlands became the first governments to issue travel warnings to tourists planning to travel to Greece, urging them to carry money with them.

Until today, Cyprus was the only eurozone country to have imposed controls on the amount of money people can withdraw on its territory, taking the plunge in 2013 following a decision by the EU to impose losses on depositors holding more than €100,000 as part of a €10 billion bailout.

In Brussels, the European Commission published its latest proposals submitted to the Greek government, a move which it said was “in the interests of transparency and for the information of the Greek people".

For her part, International Monetary Fund (IMF) chief Christine Lagarde raised the prospect of a further write-down of Greece’s debt mountain if the two sides returned to the negotiating table.

Lagarde said she backed a balanced approach that would “help restore economic stability and growth in Greece, with appropriate structural and fiscal reforms supported by appropriate financing and debt sustainability measures".

Greece’s bailout programme will expire on Tuesday, the same day that the country has to make a payment of €1.6 billion to the IMF.

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